Thursday, February 5, 2009
Mark to Farce
Thu Feb 5, 2009 12:23pm EST
It might be possible to modify mark-to-market accounting rules for U.S. banks facing steep writedowns of troubled assets without abandoning the underlying accounting standard, a senior Senate Democrat said.
Sen. Christopher Dodd, the Democratic chairman of the Senate Banking Committee, told reporters on Wednesday evening after a panel hearing that at least one former bank regulator was discussing how to approach the difficult issue without "walking away from" mark-to-market standards.
The issue of how to value distressed assets held by U.S. banks has been one of the most difficult challenges in constructing a bank rescue plan, according to industry lobbyists and lawmakers.
It the government buys some bad assets as part of the rescue, it could force banks to drastically write down billions of similar assets. That could create further instability unless changes are made to the accounting rule which requires assets to be valued at market prices.
The Securities and Exchange Commission has already given the financial industry some wiggle room and has said hard-to-value assets do not have to be marked down to fire-sale prices.
(For all the Nancy Capitalists that have been gagging for this ... watch out if you get what you are wishing for. Law of Unintended Consequences 101 - investors will lose faith in all accounting.- AM)