Congress Allows Banks to Muddy the Water

Here we go again. Congress at it's finest. This time it involves the banking system, and how they report gains and losses. I know...boring. But it's another example of what they are trying to do to us. If you ever wondered what "mark-to-market" means, well, here ya go.

There is on orginazation whose responsibility is, believe it or not, to set reporting standards for banks and financial institutions. That means the bank has to report gains and losses based on rules set by the group, called the Financial Accounting Standards Board, or FASB. These rules are rarely ever tinkered with, and if they are, it takes months of debate and public comment to be dispensed with first. Until now, that is.

It seems that all of the bad home loans that Congress insisted these banks make are coming back to haunt them. They have gone running to Congress to beg for changes in how they report their losses. With the bottom falling out of the housing market, and thousands of homes losing market value, the banks are showing huge losses on their balance sheets. They want that to go away. Who would invest in a bank with those kinds of losses? This is where it gets good.

The rule that is being changed is called "mark-to-market". It basically requires banks to value their assets based on their current market value. It doesn't matter what they paid for them when they bought them, nor does it matter what they may be able to get for them in a few years. All that matters is what it's worth now. And they have to roport whether there is a gain or loss on that asset. "Oh, no! We can't have people knowing how much our "distressed assets" are really hurting us, they might be able to make intelligent decisions as to whether we're healthy or not."

Well, Congress agreed with the banks. They insisted on relaxing the rule. No months of bothersome public comment or debate, the board allowed 15 days for comment and then took one day to review the comments. The new rules state that banks can use "significant judgment" when reporting the value of assets. In other words, they can value them based on what they think they will be worth down the road. If the fact that banks were able to hide these "toxic assets" is part of what led to this banking crisis we're in, how does this help? It allows them to say asset X is worth $100,000 today, but they think it will be worth much more in a couple years. So they can put it's value on the balance sheet at, oh, $250,000. Looks much better, huh?

Again, this is an example, albeit a boring and perhaps insignificant one, of what our elected officials are up to. Banks will still have billions of dollars of garbage loans. We just won't know how much. And good luck getting folks to dump their hard earned bucks into your bank stocks. Kurt N. Schacht, Mananging Director of the Centre for Financial Market Integrity of the CFA. said of the new rules, "Investors will not be willing to commit capital to firms that hide the economic value of their assets and liabilities."

Thanks, Team Obama. Transparency is such a breath of fresh air!