The mark-to-market accounting rule requires assets to be valued at what they would fetch in a current market transaction.But Wall Street bankers say requiring such a rule makes them look bad, is delaying any economic recovery, and exposes their real losses for everybody to see. When big money talks, Congress not only listens, it falls in line.
Here we go again…
U.S. accounting rulemakers are set to crumple on Thursday in the face of ultimatums from lawmakers (Congress), liberalizing rules that will give banks leeway to report smaller losses and asset writedowns; giving financial firms more flexibility in how they use the mark-to-market accounting rule, which has forced banks to record billions of dollars in lower values for assets.
According to the Dow Jones Newswire: House Financial Services Committee Chairman Barney Frank, D-Mass., told a banking convention that he wants the accounting rules to be "more realistic." This includes allowing a different application of mark-to-market accounting if a bank is holding a paying asset to maturity; banks shouldn't have to write down the value of such assets.”
But investors say the changes will help big banks conceal the real value of toxic assets and say FASB was bullied by Congress as a way to prop up the economy in the short-term. Congress pressured FASB to relax the accounting rule in the belief it would help fix banks and the country's financial problems.Will investors be fooled again? No.
"Investors will not be willing to commit capital to firms that hide the economic value of their assets and liabilities," said Patrick Finnegan, a director with the CFA Institute, whose members include portfolio managers, investment analysts and advisors. Federal Reserve Bank of Minneapolis President Gary Stern said Tuesday he strongly supports the system of mark-to-market accounting, “Mark-to-market "may not be perfect, but it is better than any alternative that I have observed," Stern said in response to questions following a speech to the Brookings Institution.Our Democratic Congress apparently has not learned from its past mistake:
This is not the first time Congress has interfered with FASB's standard-setting process. In 1993, FASB was about to propose that companies expense their stock options, a form of compensation heavily used by tech companies. However, then-SEC Chairman Arthur Levitt acquiesced to demands from Congress and Silicon Valley executives and told FASB to back off -- a decision Levitt has since called a mistake. After the Enron accounting scandal and when the technology bubble burst at the start of this decade, FASB adopted its options rule.Tim Backshall, chief strategist at Credit Derivatives Research said it best:
"We still know the 'stuff' is on the balance sheets and if the financials are actually allowed to adjust capital based on unreal marks then who will ever buy financials again - how can you trust them?"
Is this the change we could believe in?