Unmarked Energy

Here I am in silence
Looking round without a clue
I find myself alone again
All alone with you
--Information Society

Many believe that the key to stemming the credit market meltdown in early 2009 was not TARP, ZIRP, QE or any other acronym spooned into the monetary policy alphabet soup. Instead, it was Fed-led efforts to suspend FASB market-to-market requirements which permitted banks et al to avoid accurately pricing illiquid, depreciated mortgage backed securities and other assets--thereby steering clear of having to report conditions of insolvency.

It appears that the Fed is at it again--this time in the energy patch. ZeroHedge reports that the Dallas Fed has quietly suspended requirements for its area banks to mark distressed energy sector bonds to market. As such, banks are not reporting impairments or writing down losses from investments in energy industry debt. Using Wells Fargo (WFC) as an example, it is easy to posit that banks are lugging hundreds of billions of energy sector junk bonds. It is also easy to postulate contagion potential.

Stated differently, banks are once again bailed out by the Fed for excessive risk taking. Last time around the theme was mortgage backed securities. This time around it is junk bonds linked to energy companies.

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