Mark to Market...or why the NEW bubble could be right around the corner.

[OwnedByFerrets]

http://www.reuters.com/article/ousiv/idUKTRE5314PX20090402


WASHINGTON (Reuters) - The U.S. Financial Accounting Standards Board on Thursday agreed to give banks more flexibility in applying mark-to-market accounting to their toxic assets.

The action by FASB, an independent accounting standards-setter, came after Congressional pressure to help banks that have been forced to record billions of dollars in lower values for distressed assets because of frozen markets.

Investor groups opposed the change, saying it would let big banks conceal the real value of their toxic assets.

KEY POINTS:

* FASB allows banks to apply new mark-to-market guidance in the first quarter of 2009.

* FASB says the objective of mark-to-market accounting is to set a price that would be received by a bank in an "orderly" transaction in the current, inactive market. It says an "orderly" transaction for accounting purposes does not include the forced liquidation or a distressed sale of an asset.

* FASB agrees to drop the presumption in mark-to-market accounting that all transactions in an inactive market are distressed unless proven otherwise.

* FASB clarifies when banks are required to take write downs on impaired assets, letting them record smaller losses on their income statements.

COMMENTS:

ANDY ENGEL, CO-MANAGER OF CORE INVESTMENT FUND, LEUTHOLD GROUP IN MINNEAPOLIS

"I think it's something that on a near term basis is obviously positive for the stock market -- being able to allow these financials to put what maybe a more realistic price on their assets is a good thing



So, tell me if I'm wrong. Now the banks can say their "worthless assets" are worth any amount they want them to be??

If I am wrong, how so?


.

[marketcrazy1]

1. you are not wrong

[Big Blue Marble]

2. I disagree that FASB is saying put any price on these assets.

They are saying that the current market conditions are setting these assets lower than the fair price would be under more normal
conditions. This alternate evaluation gives the banks a little breathing room on their asset evaluations and could help stabilize
their balance sheets which can help get credit flowing again.

[OwnedByFerrets]

4. But, if THE Bank gets to set its own price, dont you think its

gonna inflate it? What have they done in the past to indicate that they will be honest in these assessments? There is NO oversight on this as far as I can tell.

And, my old standby, the markets love it....it cant be good for me.

[Big Blue Marble]

7. I understand your concerns.

FASB is giving guidance when it says as quoted from the OP:

" FASB says the objective of mark-to-market accounting is to set a price that would be received by a bank in an "orderly" transaction in the current, inactive market. It says an "orderly" transaction for accounting purposes does not include the forced liquidation or a distressed sale of an asset."

The board is not saying set any price you would like; set one that is equitable, a price that removes the current panic element
from the process. These assets values will then be evaluated in the independent auditors. Theses prices will be further judged
by the markets, by investors, and by creditors as well. Can this standard be abused? Of course.

Will it be? I doubt as much as you fear. I think that in this economic climate and with the need to access more credit and stabilize
our banking structure in the short term this will have more of an upside than a downside. Let us hope so anyway.

[earthside]

3. Re-inflating the Bubble

It pains me to say this ... but it appears that most of the schemes to 'rescue' the economy coming out of the administration are geared towards simply re-inflating the housing-debt bubble that just popped.

Let's pretend and make worthless assets worth something; let's borrow and spend $12 trillion and pretend that there is 'growth'; let's pump-up the stock market and cheerlead that we've found the "Roadmap to Recovery" (CNBC); let's promote mortgage financing so that we can start building more houses even before current oversupply is reduced ... and on and on.

I do not see any fundamental change being proposed to our economic system that will lead to a more sustainable future.

We need to get the "Agenda for a New Economy" enacted -- that is really going to be our only hope.

[OwnedByFerrets]

5. Agreed!!

[redqueen]

6. Approved by the Accounting Board:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x62237

[ljm2002]

8. Funny, isn't it...

...when the big guys get into trouble, they can get right back out again by, wait for it: changing the rules.

I'd like a rule change while they're at it. I'd like to owe on my house what it is really worth -- not what's on the original mortgage contract, but what the market would bear. Kind of a new mark-to-market rule for the little guy.

I'll be waiting with bated (not held) breath...