Posted on 03/12/2009 10:24:31 AM PDT by pleikumud
Top US lawmakers said Thursday that Congress would take action if accounting regulators and rulemakers failed to quickly improve the mark-to-market accounting standard that has forced banks to record billions of dollars in asset writedowns.
"If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself," Paul Kanjorski, the chairman of the US House capital markets subcommittee, told a hearing he called to examine the accounting standard.
The Financial Accounting Standards Board is working on new guidance to help banks determine whether a market is active or inactive and whether a transaction is distressed.
Securities and Exchange Commission Chairman Mary Schapiro told Congress Wednesday that she was pushing FASB to issue the guidance in the second quarter.
Spencer Bachus, the top Republican on the full Financial Services Committee, said FASB and the SEC have not taken meaningful action to address the negative effects of the accounting rule.
"Such action is long overdue," Bachus said at the hearing. "If FASB and the SEC refuse to use their authority to provide useful and timely guidance, this Congress may have no choice but to act in their place."
FASB was created to be an independent body and sheltered from political whims. However, lawmakers have been pressuring the accounting standard setter and the SEC, which enforces accounting rules, to provide banks with some relief.
Barney Frank, the influential chairman of the full House Financial Services Committee, told FASB and SEC officials at the hearing: "We're going to have to have some movement."
(Excerpt) Read more at cnbc.com ...
Why can’t we have some standard like:
“Any income producing investment that has produced income at any time over the last 180 days may be valued based on capitalization of earnings.
Any such investment that has not produced income over that period will require tighter standards, and a revised Mark to Market rule.”
We are talking PAPER entries here. Mark-to-market changes NOTHING in the real world. People MAY overeact to the new information it provides, but is that any reason to cover it up?
It’s especially true of securities held as reserves When the value goes down (as naked short sellers can do big time in a hurry), banks must take cash out of cash flow to maintain their reserve levels. This reduces the amount of cash available for lending.
Any such investment that has not produced income over that period will require tighter standards, and a revised Mark to Market rule.”
I wouldn't say "income at any time". At the minimum I would say "not currently in default" or even "current on all payments". Getting one partial payment five months ago shouldn't be enough to keep it from being valued at mark-to-market. I might even require two stated valuations - one based on capitalization of earnings under pretty tight rules and one at mark-to-market. If I was a multi-billion dollar investor that's what I would expect from where I invested my money to keep from being stuck with a bank's mark-to-what-we-really-wish-it-was-worth valuation.
My idea is self correcting.
IF it was a small payment, then the product of any capitalization rate calculation will, likewise, be small.
been calling my rep over this for a while, just to help private capital return.
uptick rule
and
naked short selling on the list too.
(Careful not to confuse them with too many changes)
http://spectator.org/archives/2009/02/01/providing-relief-from-the-cris
Suggest reading the article linked above, which has comments from several experts who favor suspension of mark-to-market, or at least more precision to the accounting. It’s not about covering up anything. It’s about applying common sense to the valuation of investment securities held for the long term. Mortgage backed securities are not written UP when housing prices are booming, and they should not be written down in a wholesale manner to fire sale values now, when home values are low.
Mark to market rules are a reality check to banks. If you can tweak the rules to make them even more realistic, fine. But to allow banks to carry assets on their books — especially assets that they use for capital reserves (which controls how much they can lend) — for much more than they are currently worth is irresponsible and contrary to sound banking principles. It will inevitably lead to even more irresponsible lending, which is pouring more gasoline on the current fire.
I suggest everyone read this: http://spectator.org/archives/2009/02/01/providing-relief-from-the-cris
which has comments favoring a change from mark-to-market written by William Isaac, former FDIC chair, Edward Yingling, CEO of the American Bankers Assoc., Bob McTeer, former president of the Federal Reserve Bank in Dallas, and others. For example, Mc Teer says: “If a small number of mortgages behind a mortgage-backed security become impaired, or potentially impaired, why must the whole bundle be written off?” “Why must they assume a fire sale at fire-sale prices for something they don’t have to sell?”
The full article is worth reading if you want a better understanding.
“Opponents of this change say it will undermine transparency and public confidence in banks.”
yeah we’re going to have so much transparency and confidence once Obama takes control over the banks that were forced to close /sarc
I am confused about what sorts of assets are categorized Mark-to-market. This wasn’t covered in my intro to accounting class, and it just occurs to me that any scheme that attempts to value an asset that is not being sold, runs contrary to standard accounting practices (as I understand them.)
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