Posted by Tina
Making Market Sense Investors Business Daily
** With the stroke of a pen, the Financial Accounting Standards Board has eased one of the most onerous burdens on the U.S. banking system. In case you didn’t notice, it sent stocks flying. *** We’ve felt for a long time that the standard of “mark-to-market” accounting made little sense for American banks. Apparently, markets feel that way too after FASB announced it would be repealed, stocks soared Thursday. **
** The so-called FAS 157 rule, which the public took little notice of, was imposed on the banks in 2007. It forced them to take what are long-term assets and mark them down as if they were short-term ones, based on current market conditions. *** It might be coincidental, but this was about the same time that banks and other financial firms began suffering problems that have since left the world economy gasping for air. *** In a time when markets around the world have been battered by the fiscal crisis, mark-to-market has made things worse. It has severely damaged banks’ balance sheets, forcing them to shrink capital and rein in lending. *** From the late 1930s to 2007, the U.S. banking system was reasonably stable, with a few exceptions. One big reason for this is the absence of mark-to-market. *** The change of heart from FASB on mark-to-market was largely due to Congress. We’re happy to report that bipartisan pressure undid the bad rule a rare thing these days. *** We’re glad to see some sensible deregulation when the economy needs it most. We hope this is just a start. **
AMEN IBD!