That 39 billion dollar GM writeoff and FASB 157

General Motors wrote off $39 billion last week in tax credits against future earnings. Since there is no deadline on when the tax credit could be used, then the jarring implication is that GM never expects to make that much money ever again.

This is beyond bad news for Detroit.

But the real pain happens this Thursday, Nov. 15, when FASB Rule 157 goes into effect. It dictates that investment banks and the like can no longer avoid putting market prices on now-dicey “securities” characterized as Level 3 assets. These would be the TGFKAI (Toxic Glop Formerly Known As Investments) that have cratered so badly that instead of being marked to market they are being “marked to make-believe.” But, come Thursday, the pixie dust wears off and they must be marked-to-reality. How much money are we talking?

Morgan Stanley has 251 percent of its equity in Level 3 assets, making it the most vulnerable to writedowns, followed by Goldman Sachs Group Inc. at 185 percent.

Lehman is at 165%, and Bears Stearns 159%. I’m guessing no Xmas bonuses this year for all the greedy little piggies who precipitated the current credit market collapse with their mad subprime schemes. Some of them, like with Enron, will be going to prison soon enough no doubt.

And where was the government on all this? Shouldn’t they, y’know, have been “regulating” and stuff like that? Oh, I forgot, the “magic of the marketplace” was supposed to create orderly, rational markets if just left alone by pesky governments. But instead quite the reverse has happened, hasn’t it?

  • DJ

    Admittedly their explanation is confusing (See Note 11 in the 10Q filing) and you might want to check with a CPA if you know one…

    What I get from this is that GM’s write-down resulted from the IRS’s change to the “more likely than not” tax accounting standard, meaning some tax positions that GM had taken, which might formerly have been reasonable, don’t meet the new standard of being more likely than not acceptable, and therefore must be changed. This new “more likely than not” standard has been raising havoc throughout the tax accounting world, and apparently GM is no exception. (See also Note 2.)

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