Mark to Market Suspended -- Turning the Clock Back to NON-Transparency

from Market Oracle:
Mark to Market Accounting Mess Shows That Congress, Bankers Just Don't Get It …

This week, the Financial Accounting Standards Board (FASB) caved on the mark-to-market accounting front. Members of the board agreed to give financial institutions more flexibility in valuing assets, including the “toxic” ones that have given investors so much agita.

You could see this coming a mile away because Congress has essentially been browbeating the group into submission. Recent hearings and commentary from legislators made it clear that if FASB didn't kowtow to the banking lobby and amend mark-to-market standards, Congress would find a way to make it happen.

Where do I stand on this? I made my position abundantly clear on March 13, when I wrote the following in my Money and Markets column:

“Look, the problem isn't that there's NO market for these bad securities. The problem isn't that the prices are “artificially” low. The problem isn't how we account for these assets. The problem is that the industry doesn't want to acknowledge that today's prices are the REAL prices .

There are tons of bidders out there for this crappy paper … at the RIGHT price. Vulture funds, hedge funds, private equity investors: They're all raising billions and billions of dollars to scoop up cheap real estate, inexpensive bundles of mortgage backed securities, and distressed buyout loans.

But sellers don't want to admit reality. They're not hitting the buyer's bids. They're hanging on to the garbage securities, hoping against hope that they won't have to sell at the true market prices. And the government is busy trying to figure out ways to prop up the price of the garbage rather than forcing banks to take their medicine now, even if it means the result is that they have to temporarily be nationalized or put into receivership.”

Nothing has changed my opinion since then. The banking lobby argues that because many of these assets are still spinning off principal and interest payments, they should be able to carry them at full value or close to it — not the supposedly distressed, “false” market prices.

But look at the performance of the asset markets underlying the toxic paper! Those markets aren't getting better. They're getting worse...
from a damning New York Times op-ed piece by Joseph Stiglitz, a Nobel prize-winning economist and professor at Columbia University. He added:

“The Obama administration's $500 billion or more proposal to deal with America's ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: The banks win, investors win — and taxpayers lose.

“Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.”

If you're not outraged that we're bailing out the banks in this fashion, you should be.