Do you know how to integrate the following equation ?

Do you even know what that means, “to integrate” the following equation ?
Do you recognize this equation ?

If the answer to ANY of these questions are no then you have no business trading in wall street. If you are responsible for a pension account, pull it out now and put it into something a little more sane. Legally of course this is not investment advise, but merely a “No duh” statement.

Get to know what and who Quants are on Wall Street. They are not the bad guys. However, they work for the big boys. Because of this, the big banks have so much more of an advantage then you, the little guy/gal, will ever have.

Presenting your movie of the month:
Quants: The Alchemists of Wall Street

This is a rap battle that everyone should watch. Credit: econstories.tv

F.A Hayek schools Kenyes in this video. Please keep in mind that modern Federal Reserve policy, much less the justification for the fed itself, is based on Keynes’ theory of economic. Go figure that the economy is in the trash yet again.

We have decided to end our operations on Restore The Republic Radio and launch a new podcast.

Without futher ado, here it is:

Sound Money Podcast

 

Sound Money with Andrew McElroy & Nina Ground.

In this episode we introduce who we are.
We also set the expectations for this show.

Specifically, this will not be a money management or stock tip show.
Rather this is a “definitions, who is, and what rules” style show.

Music Credits: I dunno - Grapes on ccmixter.org

I’ll let the man speak for himself. More people should see this.

This post is technical in nature. It is intended for our more advanced audience.
If this confuses you, please tune into Dollar Dazed every Tuesday on NinaGround.com
to get up to speed on how the banking system works [or rather doesn't]!

According to this report [pdf link], titled:
Federal Reserve Bank
of Atlanta
Financial Statements as of and for the Years
Ended December 31, 2008 and 2007, and
Independent Auditors’ Report

It states, amongst other things including material weaknesses and deficiencies at the fed, that the Federal Reserve uses the FAM account system– as opposed to GAAP.

From this report:

Accounting principles for entities with the unique powers and responsibilities of a nation’s central bank have not been formulated by accounting standard-setting bodies. The Board of Governors has developed specialized accounting principles and practices that it considers to be appropriate for the nature and function of a central bank. These accounting principles and practices are documented in the Financial Accounting Manual for Federal Reserve Banks (“Financial Accounting Manual” or “FAM”), which is issued by the Board of Governors. All of the Reserve Banks are required to adopt and apply accounting policies and practices that are consistent with the FAM, and the financial statements have been prepared in accordance with the FAM.

It goes on to say:

Differences exist between the accounting principles and practices in the FAM and generally accepted accounting principles in the United States (“GAAP”), primarily due to the unique nature of the Bank’s powers and responsibilities as part of the nation’s central bank. The primary difference is the presentation of all SOMA securities holdings at amortized cost rather than using the fair value presentation required by GAAP.
U.S. government, Federal agency, and GSE securities, and investments denominated in foreign currencies comprising the SOMA are recorded at cost, on a settlement-date basis, and are adjusted for amortization of premiums or accretion of discounts on a straight-line basis. Amortized cost more appropriately reflects the Bank’s securities holdings given the System’s unique responsibility to conduct monetary policy.

One other statement that is of interest is that on page three we find this statement:

Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

I wanted to bring this quote into the discussion before delving fully into FAM because without this statement, it is easy to want to believe that the reports coming out of the Federal Reserve have some ounce of truth to them.

If this statement is indeed true, and I don’t believe Deloitte & Touche, LLP were dishonest in the least, than shouldn’t an audit of the New York and Washington D.C fed, along with the board of governors be MANDATORY on a 24 month basis.

Let’s return back to the first couple of quotations. The Federal Reserve does not use GAAP according to this report from the Atlanta Fed. They use FAM. How is it that they get away with this? Every business in the US is required to use one account standard, and yet the Fed has their own?

So what’s the big difference?

The difference is that GAAP is based on valuing assets by market value, where as the Federal Reserve gets the amortize their assets. If you though Enron’s mark to market was bad, that isn’t even the 1/2 of what the Fed can legally do!

So, you might be wondering, where can I see the FAM standard?

Look no further than here!

http://www.federalreserve.gov/monetarypolicy/files/BSTfinaccountingmanual2009.pdf

Be sure to save this to your computer.
You can right click and hit save.
I understand this article has been a bit long and highly technical, but please try to understand that this is how the fed gets away with what it gets away with.

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