Months ago I argued that the whole crash and crisis could have been averted if Paulson had half an ounce of actual back room financial experience rather than an academic background. Today they finally listened to reason.
Today, under pressure from both lawmakers and financial institutions, the five-member Financial Accounting Standards Board — the arbiter of accounting rules in the U.S. – voted unanimously on new guidance for mark-to-market. Mark-to-market accounting, instituted in 2007, but given real punch by FASB and the SEC in a “clarification” last September, has been called the single most important reason the stock markets crashed so abruptly last fall. It all-but forced corporate auditors to set the most conservative valuations on the holdings of financial institutions — and in the process led to massive mark-downs and the collapse of the capital markets.
The new mark-to-market changes let companies use “significant” judgment in determining the prices of some investments on their books, including mortgage-backed securities – a move that could help banks reduce their write downs and boost net income. Better yet, FASB has fast-tracked the matter, meaning that financial institutions will be able to apply the changes to their first quarter results.