It's the banks, stupid

[psionl0]

. . . . .
IFRS tries to minimise general provisions as they allow management a lot of discretion for adjusting reported profits.
. . . .
IFRS has an academic basis ie it is planned to complete and coherent, unlike accounting standards which were built up piecemeal by practitioners. This has thrown up some mind-blowing concepts such as if a company's credit rating is downgraded, it should report a profit, as its liabilities have decreased in value.

I know that this was a response to a technical question from a financial sector worker. However, I would like it simplified for the "bank-bashers that roost here".

As I understand it, a business that expects losses on a portfolio of loans can set aside funds to make provision for bad or doubtful debts. Such provision is still an asset for the business (and typically not tax deductible).

If I am reading you right, under IFRS, either such provision (if it is made) is not counted as an asset or the debts are discounted by the amount of defaults expected.

 

[Aber]

A provision for loan losses is not an asset, but a deduction from an asset, under all accounting rules including IFRS. In the accounting period the provision is made, the provision will be a deduction from profits. The tax treatment will vary by country but I'm used to specific provisions against individual loans being tax deductible but general provisions not to be tax deductible.

IFRS accounting is not significantly different in principle with what was done before - the fundamental problem with loan provisions are the quasi-theological questions 'when did the loss happen', 'how big will the loss be' and 'what losses exist that we do not know about' which can be answered in many different ways.

Apologies if this is not clear, but the issues with IFRS are subtle and not as clearcut as critics like to claim.

 

[psionl0]

So IFRS is just a way of standardizing the way banks treat various classes of potential losses. Critics of IFRS suggest that it makes it easier to conceal losses within the banking system when it is supposed to do the opposite (I am going back to your original post here).

I think the woo is about more than just accounting standards but thanks for clarifying for me.

BTW I chuckled when I read that "a provision for a loan loss is not an asset". It might be true legally but it is still a source of funds that can cover a default.

 

[Aber]

So IFRS is just a way of standardizing the way banks treat various classes of potential losses. Critics of IFRS suggest that it makes it easier to conceal losses within the banking system when it is supposed to do the opposite (I am going back to your original post here).

Fair summary.

Because of the size of the banks, even small changes in the level of loan loss provisions are very big numbers. Also the level of provisions remains subjective and there will never be a right answer. All of this makes it easy to produce headlines alleging a banking conspiracy containing big numbers.

 

[Democracy Simulator]

It is interesting to read that the Bank of International Settlements (BIS) has just released its annual report, in which the following problems with the banking sector are identified:

"The world is now five years on from the outbreak of the financial crisis, yet the global economy is still unbalanced and seemingly becoming more so," it stated. "Big banks continue to have an interest in driving up their leverage without enough regard for the consequences of failure: because of their systemic weight, they expect the public sector to cover the downside.
"Another worrying sign is that trading, after a brief crisis-induced squeeze, has again become a major source of income for large banks. These conditions are moving the financial sector towards the same high risk profile it had before the crisis."

http://www.telegraph.co.uk/finance/...y-printing-is-putting-UK-economy-at-risk.html

So, Mervyn King and the BIS have both become 'bank bashers'. Things must be getting really serious.

 

[psionl0]

So, Mervyn King and the BIS have both become 'bank bashers'.

No, they are still 'government' bashers:

"The extraordinary persistence of loose monetary policy is largely the result of insufficient action by governments in addressing structural problems," it stated. "Simply put: central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed. This intense pressure puts at risk the central banks' price stability objective, their credibility and, ultimately, their independence."

 

[Mudcat]

3. The few megabanks are jamming up the system on purpose to put as much middle-class people into the lower class and take over as much smaller banks and institutions as possible. Finally the situation will be so bad, that the only option is to introduce a global currency, possible digitally. This is their longlasting plan on which they embarked before or during the creation of the United Nations.



Signs:

- multiple elitists have already proposed a global currency (like George Soros and many others)
- There are longlasting plans to merge the IMF and Worldbank, maybe around Bretton Woods II
- Rogue banks like Goldman Sachs etc. create crises on purpose. They set up unstable financial bubbles, which they know they will burst. They bet then against the bubbles and profit of other people's mistery.


There are dozens of other signs, will add them when I think about them. If everybody knows other signs, add them. And I mean no signs in the sky.

I think you meant to post this somewhere in the conspiracy theory forums. That would be here. Hope that helps.

 

[UndercoverElephant]

I think you meant to post this somewhere in the conspiracy theory forums. That would be here. Hope that helps.

Yeah...it's not so much a "conspiracy" as just a bunch of unbelievably greedy bankers and unbelievably power-crazy politicians all seeking to increase their wealth and power. It doesn't matter how much money the bankers make, or the risks they are causing to other people, they still want more. And for people like the leaders of European states, they are thinking "if we build a United States of Europe, I could end up being the President of Europe. More power for me!" Both groups are completely out of touch with ordinary people.

 

[psionl0]

The point is that you don't need a CT to explain what the banks are doing. Banks are corporations and corporations will do anything for money - even help politicians to buy the votes they need to stay in office.