SEC: Let's Make Things Worse!

[Bonestorm]

In essence, the credit problem banks are facing is a lack of trust among one another and the assets each are holding. Banks won't lend to one another (and hence cannot make as many loans to businesses, cities, towns, states and the like) because there are lots of "toxic assets" floating around but no one knows how much and which toxic assets the banks own are and what they're worth. Investors have similar concerns, they don't know the value of the assets of companies and are moving to safer investments. In an environment like this, the ideal thing would be to shine a light on those assets and have everyone show their cards so we can find out who is fucked and who can be trusted to borrow money and who is worth investing in.

Instead, we get a change in accounting rules that permit institutions to lie about what they're actually holding:

WASHINGTON -- The Securities and Exchange Commission and the U.S. accounting-standard setter issued guidance that will allow companies to use more flexibility when valuing securities in a market that has dried up, a move the banking industry hopes will relieve pressure on company balance sheets.

Tuesday, the SEC and Financial Accounting Standards Board issued "clarification" to accounting rules that require companies to value securities at the price for which they can be sold in the market, known as mark-to-market, or fair value, accounting. FASB said it is preparing additional guidance for later this week.

The clarifications allow executives to use their own financial models and judgment if no market exists or if assets are being sold only at fire-sale prices. They were welcomed by banking and financial-services groups that have lobbied the SEC and FASB to change the rules. Those efforts were ramped up in recent days as Congress was drafting a rescue bill.

Because of the credit crunch, the industry has said both the accounting treatment and how it is interpreted by auditors was too conservative and resulted in losses at financial institutions that were bigger than they should have been. They said the rules forced companies to write down assets tied to companies that had no chance of defaulting largely because there were few buyers or sellers.

The move Tuesday addressed many of their concerns. The SEC and FASB stopped short of bowing to pressure from some lawmakers and lobbyists who were seeking a complete suspension of fair-value accounting.

Congressional leaders are considering codifying the SEC's move in a new version of the legislation the Senate could vote on Wednesday.

The SEC and FASB, along with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, have objected to suspending fair-value accounting since it would make a company's position harder for investors to judge and would also likely postpone banks from taking their losses.

Idiots.

At least some people have some fucking sense:

"Suspending mark-to-market accounting, in essence, suspends reality."

--Beth Brooke, global vice chair at Ernst & Young LLP, WSJ, Sept 30, 2008

"Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick."

--Dane Mott, Analyst, JPMorgan Chase & Co., Bloomberg

"Suspending the mark-to-market prices is the most irresponsible thing to do. Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings."

-- Diane Garnick, Invesco Ltd., Bloomberg

 

[evince]

They are looking for ways to squeeze the last little bit of corporate ass kissing on the way out the door.

They know it will take them time to buy the Democrats they need and there wont be any Rs worth buying for a long time.

 

[Timshel]

The argument for the bailout has been that the government can hold these items until a rational market for them returns. That amounts to propping up their value with taxpayer dollars. I don't see how this could be worse.

If you want transparency then let them eat their losses. A government bailout sure as hell want make things less volatile or more transparent. It just simply puts the risks of volatility on taxpayers, who are not willing participants.