UPDATE # 2: The lefties don’t like the change. I suspect this is because it will interfere with Geithner’s takeover of banks.
We are trying to get banks to write down their toxic assets. The longer this takes, the longer the financial industry will be crippled by uncertainty about what lurking horrors are concealed in banks’ balance sheets. This rule really, really does not help.
The point is that many banks think those assets are of value and don’t want to give them up, especially after seeing the fools in Congress behavior.
UPDATE: Here is another view of the AIG bailout which makes the case that BK would have been better. This is all interconnected and I think history will see this as a financial panic, not a depression. I do have one correction. Greenberg blames Obama but the early stages of this were under Bush and Paulson should share the blame.
I have been concerned about the Mark-to-market rule introduced by the FASB two years ago in the wake of the Enron scandal. It has exacerbated the current banking crisis and today the FASB relaxed the ruling, keeping it for some purposes but suspending it for bank capital requirements. The result has been a big market rally. Let’s hope a few more sensible steps appear.
Changes to fair-value, or mark-to-market accounting, approved by FASB today allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost net income. Firms could apply the changes to first-quarter results.
It has been counter productive, as usual. It’s OK when there IS a market but there is none right now so they get marked down to zero. For some, that is appropriate but not all.
William Isaac, chairman of the Federal Deposit Insurance Corp. from 1981 to 1985, has called fair value “a major cause” of the credit crisis. Robert Rubin, the former Citigroup senior counselor and Treasury secretary, said Jan. 27 the rule has done “a great deal of damage.”
the Senate voted 89-8 for an amendment to the Fiscal year 2010 budget resolution (S. Con Res. 13), introduced by Sen. John Thune (R-SD), which would prohibit any future greenhouse gas cap-and-trade initiative from increasing gasoline prices and electricity rates for U.S. households and businesses.
God ! Common sense may be breaking out !
As University of Colorado professor Roger Pielke, Jr. points out, “The entire purpose of cap and trade is in fact to increase the costs of carbon-emitting sources of energy, which dominate US energy consumption. The Thune Amendment thus undercuts the entire purpose of cap and trade.” In other words, it is impossible to vote for the Thune amendment and support cap-and-trade and be consistent, candid, or straight with the American people.
Well, Duh !