What if I could choose my own net worth and be paid a bonus by the government if my numbers look really good?
The government is using taxpayer funds to bail out insolvent financial institutions. Now the financial institutions will be able to set their own values, thus assuring big bonuses.
Is this sane? Where is the outrage?
New Rule Would Allow Banks To Choose Values Of Their Assets
March 26, 2009 12:00 PM
Robert Herz
The Financial Accounting Standards Board quietly buckled to banking-industry pressure last week and proposed new accounting practices that would allow banks to value assets at a higher price than they could currently be sold for.
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Rep. Alan Grayson (D-Fl.), who quizzed Herz on the accounting rule, said that the demand to change the rules is "representative of exactly the kind of thing that's put us in this position in general...We have people who break every rule in the book and then they think that the answer to their problems is to break more rules. It's given us some real insight into the human nature and the pathology of the people who have created these problems for America."
If banks are allowed to determine the value of their assets without regard to current prices, investors have less trust and confidence in the integrity of their books and their assets, which could further freeze markets and further drive down prices.
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... less trust and confidence in the integrity of their books and their assets, which could further freeze markets ...
When banks can use fantasy-land prices, no investor will be able to trust the books of any company. Aside from short-term scalping, who will buy stock for the long term? Who will buy life insurance policies from companies with make-believe books?
Removing mark-to-market accounting will make the economic problems worse while extending the period of correction by many years.
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