Mark-to-market changes: Just a little more time
Today's Financial News - Posted March 12, 2009
The government’s ability to pass the blame never fails to amaze me. But even with all of the political maneuvering, I am happy with Washington’s action today. We may just see changes to the nation’s accounting rules sometime this year.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is true. The government giveth and the government taketh away. Over the past month or so, Washington’s spending spree and tax talk sent the equities market plummeting. It was painful.
This week, a lack of political gesturing and rumors of positive regulatory changes are giving investors a reason to return to Wall Street. Obama is replacing his teleprompter batteries so investors are sneaking back in.
Ever since the banking-sector meltdown began to hit the news, Wall Street has called for changes in mark-to-market rules. The regulations, while created with the best interest of investors in mind, are far too stringent and overzealous in markets like these.
With mark-to-market, banks have to list their assets at current prices. If a bundle of mortgages is only worth $5 today, that is what the books must show. It does not matter if that same bundle was worth $1 million last quarter and is expected to fetch $2 million next year. If the market price is just $5 today, that’s what the asset must be marked at.
It makes sense, to a degree. If we were to eradicate mark-to-market accounting, bankers could value their assets at just about any level. I think we all know there are few CEOs that could resist inflating their figures just a bit. Eventually, the inflated numbers would rise out of control as greed and competition ultimately kick in.
Finding the middle ground
Eliminating the rules all together is not an option. But frankly, neither is keeping the current regulations. That is why investors want some sort of compromise and have been yelling for the government to take action for months.
Of course, changing a boring old accounting rule will not get an elected official too many votes. But pork-barrel spending and stimulus packages certainly will. We have all seen where Washington’s priorities lie over the last 52 days.
It is not until the markets plummet by more than 50% and take us back to 1996 that our leaders realize they had better do something.
Today was the day they took action. Well, let me restate that. It is the day they decided to tell somebody else to take action in a few weeks.
No hurry, boys
Earlier today, a House subcommittee got together to discuss the mark-to-market situation. While it is refreshing to see lawmakers breaking a sweat on truly noteworthy work, the outcome of the meeting is nothing out of the ordinary, especially for this administration. The committee merely passed the buck onto somebody else.
Really, that is what everybody involved in the issue has done.
Bernanke says let the SEC deal with it. The SEC says let Congress legislate changes. Congress says make FASB find a middle ground. And of course, FASB says we thinking about doing it in a few months.
Not too look outsmarted and to make us feel good about our votes, the subcommittee today tells FASB to try to have it done in three weeks.
Even though the process will be complicated and absolutely nobody, especially an elected official, wants to be on the hook for making the controversial regulatory changes, it appears mark-to-market rules will be changed sometime this year.
What does the market think of all this? You decide. Right now, the S&P 500 is up 2.4%.
Finally, something good is brewing in Congress.
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