FASB pressured into mark to market changes

Looks like the financial oligarchs are firmly in control of the nation. The FASB relaxed the rules:

The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

The changes to so-called mark-to-market accounting allow companies to use “significant” judgment when gauging the price of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost their first-quarter net income by 20 percent or more. FASB voted 3-2 to approve the rules at a meeting today in Norwalk, Connecticut.

In What is Mark-to-Market and Why Should you care, Bill Isaac did imply to ease the rules means less sucking at the taxpayer wallet. While it is clear mark-to-market removes transparency and allows more fictional profits, the biggest story here (since we already wrote about the details in the links), is how the FASB (and Congress) succumbed to lobbyist pressure.

I suspect the score for the national interest regarding the financial crisis is:

Financial Oligarchs 120349558
Regular Citizen 2

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Bill Isaac has a point:

Fannie, Freddie Need Less Aid With Accounting Change

This may be a short-term solution but it doesn't resolve the long-term problem.

Cash-flow is king. No accounting standard will change that. If mortgage defaults are still occurring and there is no cashflow for MBS the market will still think they are worthless. "Mark-to-Model" won't change that reality.

It seems we are just kicking the problem down the road.


That's what i was pointing out in the original 'what is mark to market' blog post I wrote and the resulting comments..

he basically same up with a game simply in order to avoid putting taxpayers on the hook and did similar things when resolving the S&L crisis.

I honestly think his analysis is completely different from the corporate lobbyists agenda, which is to keep the entire derivative, fictional black box gambling model going, ala "Enron" style, whereas Isaac seems to be more interested in figuring out a way to clean up the mess while being a serious budget deficit hawk type.

But this creates potential problems:

1) Financial conglomerates become emboldened and decide to hold onto "toxic assets"; or

2) Financial conglomerates will ask for a too high a price and Geithner's plan fails.

Time will not heal this problem. If anything it will make it worse. We can end up truly in a worse situation then Japan's.

Time will only make this problem more costly for taxpayers.

This change will not stop capital injections. It just may mean they are not as big.

I agree

I think #1 they need to be regulating in mass and plain stopping a host of derivatives. also, nationalize "some" banks, namely BoA, Citigroup as the top targets, fire the executives.

Then, on the rest of these on this "winding down" of derivatives they should either offer a partial payment to no payment, depending on the solvency and TARP recipient.

I agree fundamentally mark-to-market just exposed the illness and is not the cause but when one gets into these complex corporate accounting method, I'm learning myself, digging around. That's what I've determined so far for myself.