The Financial Accounting Standards Board decided on the change after Congressional hearings during which they had been severely pressured by politicians from both parties.
Mark-to-market means that banks have to value their assets at market price. When banks have worthless assets that nobody wants to buy, that used to mean bad news for the bank, as if a fruit stand were full of rotten apples. Not anymore.
Thanks to this change, banks can just make up what they think the assets “should be” worth. This will make it seem as if the banks are doing much better, and we will most likely see a big change already in the first quarter reports that are coming out soon.
This change is nothing short of ridiculous. Is anyone going to believe that the trouble that the banks were in is all of a sudden over? Did the rotten apples become red and shiny again?
Another reason for the change is that Geithner thinks he has come up with a round-about way of giving more taxpayer money to individual bankers. It works like this:
1. the banks are allowed to decide themselves what assets are worth and put that on their books
2. when the recently announced "public-private partnership" to buy toxic assets (to the utter detriment of the taxpayer) will start, the government will be able to grossly overpay for the toxic assets, because by that time these assets will have been marked up dramatically by the banks themselves.
It looks like the government is not overpaying, because they're just paying what's on the books...
3. again, an enormous transfer of wealth from taxpayers to bankers has occured.
The most significant factor in all this is not that one would be well advised to stay away from bank stocks; it is the implications for the whole economy. Until the problems at the banks are exposed, we cannot solve the financial crisis.
What the suspension of the mark-to-market rule will do is to bury the toxic assets even further away from sight of regulators and the public, and enable banks to go on with their zombie existence until its time for the next bailout.
And there will have to be more bailouts as a result of this disastrous policy.
This policy change is, in essence, a complete endorsement of the “Enron Accounting” that has already brought the world financial system to its knees. Why U.S. politicians have decided to legitimize it is totally beyond me, and it is an unbelievable outrage.
Moreover, I advise that the winner-takes-all voting system should be destroyed