FASB discussing changes to mark to market rules.
WASHINGTON (MarketWatch) – Responding to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board on Thursday morning engaged in discussions to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value and strong cash flow.
i think nassim taleb (author of the black swan) said it best on cnbc the other day.
here is the link to the video
he likens the change in mark-to-market accounting to burying your head in the sand, or if you prefer, gauging a patients temperature without a thermometer. this video is worthy of watching.
also, you can catch taleb on russ roberts econtalk podcast here. 1 hour.
Is there anything our government could possibly do to make this situation worse? I mean if they tried to make it worse, could they do so or have they already exhausted all the bonehead moves under the sun.
The really scary part is the market surging 300+ pts on the news that it will now be permissible for institutions to lie to investors about what things are worth. I can’t believe this!
They did it, my god they did it.
"U.S. regulators relaxed rules on how banks price assets, which had shaken financial institutions with hefty write-downs, and leaders of the G20 announced an additional trillion dollars to support the International Monetary Fund and boost trade" (article below)
So banks and other financail institutions can lie outright to us legally and giving our money to a group (IMF) to bail ourselves out is good for the markets.
Let the bulls run, it is too bad for most the end of the road is off a cliff.
I am going to check my tomatoes out.
looking just a little bit off into the future (late may and early june) we will see that this change to mark to market accounting is going to cut the treasury secretaries plan of public-private investment off at the knees. here’s why.
when this plan kicks off it is up to the banks to put these toxic assets up for auction. as we all know they will put up their most horrid assets and the public-private investment firm, with excellent financing terms, will buy it for far more than it’s worth for sure, maybe $0.50-0.60 on the dollar but the banks have got the toxic assets still listed for $0.70-0.80 on the dollar.
with mark-to-market accounting the banks would be forced to take the loss on the books this quarter. now with relaxed mark-to-market accounting we be rest assured that these bad assets aren’t going anywhere. the 500 point bump in the market after this program was launched will have to be factored once again back into the market (or marked back to market) as a -500 drop.
now, this theory of mine assumes that this public-private investment is legit, if not, as chris martenson points out in his podcast, then intentionally fraudelent investors will shutter doors after a few weeks in the program and the money smoothly moves from the taxpayers into the banks without having to nationalize the banks.