This sounds like a winning plan.

[unixronin]

...NOT.

WASHINGTON—The board that sets U.S. accounting standards on Thursday gave companies more leeway in valuing assets and reporting losses.  The changes should help boost battered banks’ balance sheets and financial stocks rallied on Wall Street, but the rules may undercut a new financial rescue program.

Here’s the meat:

The FASB issued new guidelines under the so-called mark-to-market accounting rules, which require companies to value assets at prices reflecting current market conditions.  The changes, which apply to the second quarter that began this month, will allow the assets to be valued at what the banks project they might sell for in the future, rather than in the current, distressed environment.

Waitaminnit.  This allows banks to make up what they think an asset “ought to be” worth.  Isn’t that exactly the kind of voodoo-accounting shenanigans that got us INTO this mess in the first place?

(Pointer via bratling, in another venue)

Comments

[ithildae.livejournal.com]

I'm sorry, I wasn't clear. The value is the amount of interest due on the loan over the contracted life of the loan. It has nothing to do with property values, only the contract for the loan. When the property value falls below the face value of the loan, the contract needs to be revalued, down. That is precisely what the banks are refusing to do right now. How much that downward valuation needs to be should be determined by the market. The banks are claiming that their is no functional market, so their original valuation should remain valid. Forcing the downward valuation is what Mark to Market is for. If the regulators blink in the face of the standoff we are having right now, it will never matter how much regulation we want to write down, the big banks will never be subject to that painful regulation anyway. Our boom/bust cycles will be amplified and occur more frequently, instead of being damped, which is what Mark to Market does, when we use it.