Duh…. That is my response to this story from this morning’s Wall Street Journal – Move to Ease ‘Mark’ Rule May Subvert Treasury Plan:
A new accounting rule set to be approved this week will relax mark-to-market rules for banks sitting on billions of dollars in toxic assets, making it more attractive to keep the assets on their books. Yet those changes may undermine a larger U.S. Treasury plan to rid the banks of those same assets, bankers and accounting experts say.
The Financial Accounting Standards Board is proposing significant changes to its mark-to-market rules, allowing banks to set their own values for certain hard-to-value troubled mortgages, corporate loans and consumer loans. The new proposal, called FAS 157-e, is scheduled for a vote this Thursday.
The change was meant to assist U.S. banks after bankers complained current mark-to-market accounting rules forced them to undervalue their assets, by setting prices at deeply discounted, fire-sale values.
Once the new accounting rule takes effect, banks will have new incentive to keep the assets directly on their books, say bankers. That is because the rule states that banks can use their own judgment on asset values as long as there are no willing bidders to set a market price.
So, people are just now figuring out that the whole point of suspending mark-to-market is to allow the banks to avoid having to write down their bad assets? And if they don’t have to write down those assets, they won’t. And they won’t sell them. And those assets will just sit on the books like some bad fiction. And the banks won’t have capital to lend because everyone know that their asset base is just junk. And the US will follow the path of the Japanese and create our own lost-decade.
Now, tell me again why moving to mark-to-myth is good for investor trust, is good for business and is good for the economy?