US suspends mark-to-market rules on bank assets
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Independent Minds
Banks in the US are being given more discretion on how to value the toxic mortgage assets that have poisoned their balance sheets in a reversal of parts of the controversial "mark-to-market" accounting rules that many blame for exacerbating the credit crisis.
The Financial Accounting Standards Board (FASB) voted yesterday to let banks ignore market prices for assets if they judge the market is illiquid and that the most recent sales are being done at firesale prices by distressed sellers. There will also be changes to allow banks to book smaller losses on impaired assets that are available for sale, which could take extra pressure off many of the biggest banks in the US.
Traders put yesterday's dramatic rally by global equity markets down to the relaxation. In New York, the Dow Jones broke through the 8,000 barrier for the first time since 9 February, before closing up 2.8 per cent at 7,978.1. In London, the FTSE 100 rose 4.3 per cent to 4,125 – the first time it has closed above 4,000 for more than a month.
The FASB was acting under pressure from Congress, which said it may legislate if the board did not ease the rules.
The Centre for Investors and Entrepreneurs, which has been campaigning for a suspension of mark-to- market accounting, welcomed the move. Its director, John Berlau, said: "By itself, this change will not make the price of mortgage assets higher or lower. Rather, it will allow price discovery to occur. Mark-to-market distorted the market by forcing banks to take losses on mortgage assets even if the underlying loans were still performing."
The issue is at the root of the problems facing banks over trillions of dollars of mortgage-related assets, many of which have not traded for 18 months. As mortgage arrears have ballooned, investors have fled the market and those who want to buy them are not keen to pay top dollar. The few early trades, at low valuations, forced all the banks holding similar assets to write off more than half a trillion dollars, sending several large players to the point of insolvency.
Since then, banks have refused to accept dramatically lower prices, believing their losses will be less if they hold the assets until all the underlying mortgages have been paid back. The stalemate, though, has led to frozen credit markets.
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Comments
How much more confident do you feel now?
The excuse that mark to market is not appropriate is pure whitewash - accounting standards should be conservative, and given an objective standard investors are capable of adjusting accordingly.
This just hides losses, and makes confidence in the banks impossible.
Two other recent news items make it clear that the powers that be are in fact entirely corrupt.
The first is that AIG apparently engaged in the issuing of 'side letters'. This means that contracts were formed purely to evade restrictions on capital ratios etc, and there was a side agreement that the bets would never be honoured.
This is fraud pure and simple, and means that the US taxpayer is now being stuck for monies when no valid contract was ever formed.
The failure to take over AIG when it went bust means that the criminals have had plenty of time to cover their tracks.
The second piece of news relates to enormous short positions in gold taken out by Deutsch Bank.
They had not got the assets to cover this, and this is known as the illegal practise of 'naked short selling.
'Co-incidentally', the ECB has released a huge amount of gold - enough so that Deutsch Bank could cover it's position.
Regulators who were interested in enforcing the law would have an easy criminal investigation, it appears.
Of course, regulators who are interested in cosying up to those they are supposed to be controlling, in the interests of getting lucrative appointments when they retire, would do exactly what the regulators appear to be doing - nothing.
In the circumstances, perhaps relying on Merkel to safeguard us with calls for tough banking regulation is optimistic.
Criminal fraud is being carried out, it seems, by the banking organisations in collusion with the politicians and regulators.
It seems unlikely that the system will be fixed, when the emphasis is on looting any monies which remain.
I thank you
Firozali A. Mulla