We generally try to maintain a reasonable level of tact and respect for fellow writers here, but sometimes we come across something so disappointing that the gloves simply must come off. With that disclaimer in mind, I can't help but ask:
Floyd Norris, are you freaking kidding me? As if the quality of financial journalism (especially over the past year or so) wasn't already a virtual oxymoron, we have to deal with "the chief financial correspondent of The New York Times and The International Herald Tribune" writing crap like this?
The CFA Institute, the organization of certified financial analysts, distributed a questionnaire to its members on Thursday, and so far has received more than 5,000 responses from people whose job it is to review financial statements and make investment recommendations.
A College newspaper could do better, jeeze! Seriously, the 1st line man?!?! CFA = Chartered Financial Analyst, this isn't rocket science buddy. Lets not even talk about how you can write about a survey without providing a single, solitary link or other reference to prove that it actually, ya know, exists. After reading your post, for all anyone knows you might as well have made the whole thing up (and kind of did anyway, ironically enough). Are you seriously that much of an interweb n00b? Hell, any armchair blogger worth their weight in ratings reports could do better, from their Blackberry none-the-less.
For the record, the CFA Institute actually did publish the details of its survey (learn to use the Google Machine, son), and there are some salient details Mr. Norris failed to point out, like, oh, it was actually a "global member poll on governments’ attempts to stabilize the markets and liquidity," a fact Mr. Norris conveniently omits, among several others...
Anyway, just as all Nazis were German, but not all German's were Nazis, not all CFA Charter Holders fit into the group of "people whose job it is to review financial statements and make investment recommendations." As a matter of fact, I'd say just back of the envelope, of that population of people for whom that is their job, CFA members probably comprise maybe 50%, absolute tops, maybe 1/2 that, if not less? Its not (despite the CFAI's best intentions/attempts) the de facto global standard by which everyone in Finance is held or judged, my friend.
Not to discredit those who have attained it of course, but passing the 3 levels of the CFA exam, while not easy by any stretch of the imagination, isn't really the same as a PhD (Masters, or even some MBA's) in Finance or Economics, but that's not even the point (and certainly not one worth arguing about here, so spare us, please).
It should come as no surprise that they are more concerned about banks overvaluing assets than about the possibility that mark-to-market accounting is causing assets to be valued at unreasonably low levels.
Dare you consider why this might (seem to) be the case? Of course not, but I'll get to that later. The bigger problem is that this conclusion is a complete an utter non-sequitur Check the CFA link above, nowhere in the survey were participants asked which direction they thought values were skewed towards relative to "current market value". NO.WHERE. Is this guy pathological or is he just another thread in a long string of ignorant journalist searching for a sensational story where one does not exist?
They were asked for opinions on the importance of several possible causes of market volatility, on a scale of 1 for no importance to 5 for major importance. They could rate as many of them as very important as they wished.
Here are the percentages who rated each factor as 4 or 5, meaning they thought it played a significant role.
Unwillingness of commercial banks to lend to one another: 88%
Concern about likelihood of global recession: 78%
Concern that financial institutions continue to hold assets at values that do not accurately reflect current market value: 75%
Lack of coordinated action by regulators across regions: 40%
Mark-to-market accounting: 36%
Slow pace of implementation of U.S. bailout plan: 31%
End of ban on short-selling: 20%
Someone must not have done very well in Statistics class...
Here are the original question and distributions from the CFA website:
Now, someone who has paid attention in Stats class can look at the above table and be wholeheartedly unsurprised with the results. I'm pretty sure no one with even 1/2 of a functioning brain (eliminating politicians, among others) has claimed that Mark-to-Market accounting or the short ban were the major drivers of the shitstorm we've been dealing with. Naturally they didn't help matters, and weren't/aren't (at least in their current form) very well conceived or executed, but they didn't start the fire. (run with the Billy Joel lyrics, you know you want to).
A statistically correct conclusion from this data would be something along the lines of saying that (using standard descriptors for each # choice 1-5) 75% of respondents agree or strongly agree that concern over banks holding assets at values which don't accurately reflect current market value has contributed to continued volatility. (See what I did there? That's the difference between data interpretation and plain-old making shit up, Norris.) Of course, even this statement in-and-of-itself assumes respondents somehow (their CFA ninja finance skillz?) have a better idea of "market value" than other market participants do, which is itself silly, at best, since the "market" for these "assets" well, frankly doesn't exist.
Now that the banks can be recapitalized by the government, they should be eager to get the bad news behind them by marking toxic assets at toxic levels.
How do you propose they do that, sir?
Have you ever tried modeling the cash flows, default rates, collateral, recovery rates, etc, for a portfolio of mortgages, themselves structured into even more complex securities the likes of which actually may require rocket science to comprehend? Hell, have you ever done even the most basic DCF? Do you have any idea what the hell you're talking about?
Didn't think so.
You would think that, having been proven to be so wrong about these assets — that is how they got into this mess — the banks would be a little humble about insisting that their valuations now should be relied upon even if no one is willing to pay the prices they calculate.
The banks were working within the framework allowed by law, regulation, and market oversight. Just because the SEC, FASB, Ratings Agencies, Auditors, Accountants, and Investors (to say nothing of the internal risk groups) dropped the ball isn't the banks' fault. Sure, they were given enough rope with which to hang themselves, lo and behold they did, HUGE surprise that is, right? (In fairness, and putting sarcasm aside just for one, very brief second, the banks did screw up, badly, but this short, curt, unsurprisingly NYT-esque jab does nothing but further the populist anti-Wall Street vendetta sweeping the Country and the World.)
Norris gets close to saying something useful or coherent towards the end, though:
If the banks believe that the market price is a fire-sale price, they can use some of the government cash to buy the assets cheap, and profit if they turn out to be right. Those purchases could also drive up the market price.
If not, why should anyone believe their protestation that the problem is the accounting, rather than the assets themselves?
Who claimed (and was remotely serious) that the accounting was the main fault besides the Bank CEO under fire from a panel of clinically retarded Legislators on Capitol HIll? You mean to tell me people try to dodge blame? HOGWASH! Seriously, the accounting is DEFINITELY a part of the problem, not the biggest, but it is most certainly not helping matters any. (ed: Suggested reading: FAS 157, FAS 133, FAS 140, any accounting or finance book, etc). We are by no means defendants of the Banks here at 1-2 Knockout, hardly, but your whole post reeks of the typical leftist, anti-capitalism rhetoric for which the Times is infamous.
In conclusion, I'm appalled with Norris' post for a variety of reasons, perhaps most of all because with his stature, with his distribution, he had the opportunity (and still does, hint hint, wink wink) to do so much more than to propagate his perverted survey results into this anti-Wall Street, populist rubbish. The worst part is that here or there, throughout, he almost gets close to making a good point, but then just as quickly as it emerged on the horizon, its right back to the dull grey skies of piss-poor financial journalism, sigh...
ht to Dealbreaker for bringing this to our attention
(Disclosure: Anal_yst is not affiliated with any political party, and actually reads the NYT on occassion without blasting its writers.)