FASB wants to change the accounting rules that allowed MF Global to hide their true exposure. GG sure hopes this is just for a public relations show. Because, all financial houses use repo to maturity. There would be no market left, it would blow up. Balance sheets would be a mess.
No, no, gg knows what will happen: the big five will be exempted and all the small fries will be forced out of the market. Rules in place, systemic collapse…still a problem.
There is no solution to the huge derivative problem. They will blow up. The only question is when, and how much of it can the banks unload on sovereign funds and taxpayers before it finally happens.
MF Global was financing its European sovereign debt bets through “repo-to-maturity” transactions, which allowed it to move the exposure off its balance sheet, even though the firm still faced enormous risk in the case of a default.
FINRA and the SEC ultimately forced MF Global to increase its capital. The firm later disclosed the capital infusion in September.
Since then, lawmakers and regulators have raised questions about whether the accounting treatment used by MF Global for its repo-to-maturity transactions is appropriate, or whether it may have hindered regulators from catching problems sooner.
“That is a loophole so big you could drive a Mack Truck through it,” Democratic Senator Kent Conrad told Schapiro during a hearing in December. “If that’s not closed down, we really got to ask ourselves what we’re doing.”
Even if you close the loophole on future transactions, you can not apply it to past transactions without blowing up the whole system. New debt, that depends on very interesting loopholes in accounting rules, is the only thing keeping this thing from going down. There is no solution. The option is controlled or uncontrolled and groovygirl is not even sure that is possible with different global entities and countries trying to solve their local problems first in spite of the global waves.