Do the numbers on your balance sheet not look so hot? Are your financial statements causing you to lose sleep?
If you don’t like what those rows and rows of puny numbers are telling you, just erase them and write down some new figures you do like.
Or so goes the rallying cry to suspend mark-to-market accounting!
Mark-to-market accounting (also known as “fair value” accounting) means companies must value certain assets (such as mortgage-backed securities) at the price those assets could sell for immediately.
Critics say the rule is forcing banks to value assets at fire sale prices instead of their true intrinsic value, since no one will touch mortgage-backed anything right now. Suspending the rules, they say, will allow banks to survive the crunch long enough for prices to return to higher levels.
Nonsense! says Wonk the Plank. Accounting is an often inexact science that attempts to measure financial value. Enronning our yardstick doesn’t do anything to address the root causes of the crisis – it just obfuscates the problems for the least informed.
Changing the rules of the game mid-crisis will only reduce transparency and reliability of balance sheets, the qualities that will ultimately help us get out of the economic lurch. The drumbeat to change the rules, while soothing, should be ignored.
The New York Times dug up this great quote from a couple of JP Morgan analysts: “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.”
Remember all those short sellers and speculators responsible for our financial problems in the recent past? Just like those bogeymen, mark-to-market accounting is just a politically convenient scapegoat because it abdicates all responsibility for our troubles to something nobody understands.
Check out Representatives Marcy Kaptur (D-OH) and Marilyn Musgrave (R-CO) retreating to their talking points when they get confused by all this Wall Street jargon (Thanks, DealBreaker!). “The answer is for the President to go and call his SEC chairman today and get him to change those mark-to-market rules.”
Reps. Kaptur and Musgrave search for bipartisan compromise
Thanks, ladies. While you’re at it, tell that SEC emperor his new clothes look just fine.
