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Thank Investment Banks for Warning You about Financial Accounting Standards Board Land Mines in Your Stocks

27 may 2008 - Markets - Editor

Do you know what Level 3 means? You could be in for stock market losses if you think the term refers to floors of a building. Level 3 is part of the rules of the Federal Accounting Standards Board. It gives license to executives to value assets any which way. You can use them to report non-cash profits. Just change a line in a balance sheet. Conjure earnings that do not exist. It is legal. Investors without connections cannot complain.

You guessed right. Investment banks use this trick to the hilt. After all, why else would they employ so many suits? It makes the stuff of dream press releases. Unfortunately, dreams have to end. Every quarterly financial statement needs foot notes. You have to declare your Level 3 asset valuation changes. This is the hidden truth of non-cash profits. The stronger an Investment bank brand, the more it relies on Level 3 assets and liabilities. Rule 157 of the Federal Accounting Standards Board swears by the bank balance sheet. It is like an old dog that never ditches its keeper.

Banks have developed a culture all of their own. The ethos is as exclusive as they come. Even the smaller regional fry are excluded. You cannot beat them. Join them by learning the lingo. Jargon comes with familiarity. Keep practicing every week. Have you read our earlier piece on the language of bankers? Here it is again: The No Comment Clue to Mortgage Losses on your Stocks

Now add Level 3 to your financial lexicon.

You can also exit the large capital Investment Services Industry altogether.

 


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