Are You Kidding? FASB Suspends Mark to Market??
This is insane.
FASB suspends mark to market accounting for investments.
So investors and others looking at the balance sheet of any company can be lulled into a false sense that the balance sheet actually represents the assets and equity/capital of a company.
If people wanted banks to be able to lend more, in light of the lower capital they have due to lower valuations of assets, then why not relax the actual REGULATIONS that govern the amount they can lend???
I know, I know…too smart for politicians who bullied the FASB (Financial Accounting Standards Board) into making the new provision. They even threatened to create legislation to relax the rule.
I guess these methods were a lot easier than relaxing the regulations, which I would admit would be onery, with both federal and state regulations to contend with.
But still, the rule doesn’t change a single substantive economic thing.
Instead of an investment being worthless, it’s now worth the $10 million that the company thinks it should be worth in a stable economic environment.
Go figure…
Btw – mark to market accounting means that a company states the value of an investment on its balance sheet at the market value of investment. If it’s a loss, it lowers the company’s total equity/capital.
