Just following up a bit on this discussion, yesterday the rest of the world told the US and specifically FASB to take a hike - the IASB is just not going to accept political manipulation of valuation mechanisms as a substitute for fundamental rationalization of valuation methodology.
www.ft.com/cms/s/0/cc428a96-1fe4-11de-a1df-00144feabdc0.html
This is a huge change and probably one of many to come in the next few months; 18 months ago the American regulatory approach was in many ways the default template for the direction of evolving regulatory efforts and accounting standards, a year and half later it’s regarded as kind of a sick comedy when it is not perceived as an outright menace to international financial stability. We are never again going to have that degree of influence, but IMO it’s just insane engage in this sort of attempt to prop up balance sheets polluted with un-valuable assets and dilute our remaining influence in a world where we are dependent on a well regarded dollar and the availability of foreign investment to keep our economy functioning.
Meanwhile, I feel we are falling further and further behind the curve on dealing with valuation issues at a fundamental level- just stumbling along in the dark hoping to the light will come back on before we pitch headlong down the basement stairs - and the possibility of the US economy in a wheelchair a decade or more is a pretty scary prospect.
IMO SOX has become a whipping boy for complaints that are really about fundamental misbehavior on the part of both US and international finance, and a straw man as regards the arguments related to valuation methods. Go back to the FED guidance at the link in my previous post - there was already generous leeway to attempt realistic evaluation of asset value in disorderly markets, the failure to do so is just one more example of the widespread incompetence and wishful thinking so evident in the run up to her current problems.
Of course, that's why relaxation of the rule is not a panacea that many have described it to be - because it was not at the root of the valuation issue to begin with - which will have to be decided by the market. It only fixes a technical problem which was not anticipated when setting the rule up, but was exploited and did play a role in the stock market turmoil of financial companies when applied on strictly bureaucratic basis.
FASB, of course, has also screwed up on the options "transparency" issue, and their revised merger rules are screwing up and killing mergers that otherwise would have taken place, but now cannot be justified financially. For a little known agency they have done a lot of damage in recent years, in my opinion for no other reason than asserting their power, i.e. because they could.
We are moving from GAAP to IRFS within a couple of years anyway, so why should IASB care about an internal FASB issue which doesn't really affect the valuation of assets, only moves an illusion of such from one end of balance sheet to another to solve the issues in US stock market? Real issue affecting valuations is liquidity or illiquidity, and FASB rule change doesn't change the fundamentals.
Re SOX, it has been a bad law on a host of issues. It was rushed into by politicians in the wake of Internet bubble and accounting shenanigans, and it seriously drained foreign and domestic investment from our capital markets. People have been prosecuted for financial crimes before and without SOX, but it treats CEOs and CFOs as "criminals in waiting". But outside of that it had little, if anything, to do with this financial crisis. So, trying to blame SOX for valuation issues does make it a straw man argument.