Friday, April 3, 2009

Suspending Mark-to-Market: Bad Policy, Bad Time - DealBook Blog

Though this is old news now (I'll be posting something about the new FASB rules about mark-to-market in a few days. I'm a little behind here so cut me some slack.) the New York Times is opposes a change to the FASB rules:
The timing, moreover, is troubling in three ways: first, its proximity to the grilling the FASB chairman, Robert H. Herz, received in Congress earlier this month; second, the short time given for discussion and debate; and finally, the possibility that financial institutions could suddenly paint a rosier picture of their balance sheets in the midst of an already volatile period.

Over all, it seems like a recipe for weakening, not increasing, investor confidence.

Their logic doesn't quite play in that last sentence. Everything about the proposed rule change is intended to increase investor confidence. Investor's don't want the truth, they want a rosy picture. If the rules are changed and the stock market rallies, isn't that rally an act of investor confidence?

I'll have more to say about this later - I disagree that the FASB rules alone were responsible for the crash but it certainly added fuel to the fire - but once upon a time, FASB didn't call for mark-to-market accounting as we understand it now. The rules changed once, they can change again. The NY Times talks about bad timing but what better time would there be than now to change these rules?

Besides, if the NY Times is against it, I'm automatically for it.



  1. Pete,
    I totally agree with what you are saying (except, maybe the part about invetors just wanting a rosy picture so give them a rosy picture to boost confidence); but you are completely right, people had a way(s) of arriving at fair value long before fAS 157 came along with its definition of fair value being the 'market participant-exit value' model, and the current guidance projects are to apply the guidance that already allows models other than mark-to-market (which are also discussed in FAS 157) to be applied in inactive markets.

  2. Thanks for stopping by, and for the comment, Edith. I'll expand a bit on what I think investor's want in a bit - tossing off a remark on the fly like that fly invites questions. Investors will find a way if given reliable information. Now we have to define what's reliable and I think the FASB process proves that definition can be fluid.