Over on NP, rowdyroddypiper, a.k.a. rrp, on July 26 said:
If you want to see what goes into getting something off balance sheet start reading up on FAS 140. I will send you something if you like on it.
I consider this homework that I haven’t done yet, but thought it was interesting to see FAS 140 appear on one of my favorite blogs, Calculated Risk
Physicists often shoot from the hip and go with what feels right. This is a bit more serious than it may sound because you spend years and years of hard core technical training to be able to discern real content from BS. A lot of that thought process becomes subconscious so I’ve learned to trust my gut over time. Another “gut” feeling is that SFAS 140 will come more and more into play as the credit cycle turns. Particularly as default rates increase. Corporate balance sheets appear to be strong and that has been one justification for tight spreads over the past couple of years. I think we’ll discover that the appearance of strong balance sheets will turn out to be little more than smoke and mirrors as default rates increase. Understanding what off-balance sheet
s exposures to a turn in the credit cycle corporations have will be crucial for investors in the next few months I think.