How Can We Miss Mark-to-Market Rules If They Won't Go Away?

At The Atlantic's business site, Daniel Indiviglio wonders why nobody has noticed that the greatest financial villain of six months ago may be rising from the grave. The Financial Accounting Standards Board (FASB) is considering a return to the mark-to-market accounting rules that were buried in April, amid intense political pressure and bank bellyaching. Indiviglio checks out the minutes of the FASB's July 15 meeting and draws an ominous conclusion:

FASB is suggesting that all financial instruments—the good, the bad and the ugly—must be valued on a bank's balance sheet at their market value. Illiquid CDOs, property holdings, credit derivatives and anything else you can think of will all now be marked, mostly down, to what they would trade for in the market. Currently, banks can classify the most illiquid stuff on their balance sheet as "held for investment" or "held to maturity" and use whatever value they believe the assets are worth based on internal assumptions.

Full article here. The comment thread includes the inevitable "this writer obviously knows nothing about the subject as I will now prove by using some acronyms" snipe, and it is not clear that this proposal is going anywhere or that its effect would be as earth-shattering as Indiviglio suggests. Still, given the tsouris mark-to-market supposedly caused, it's notable that the idea is back in play.

The scapegoating of mark-to-market was one of the recession's more absurd phenomena. Clearly, it doesn't help a megabank's balance sheet to have to admit that an asset nobody is willing to buy is, by definition, not worth anything. But isn't that covered by the ancient principle of tuffibus shitibus? You'll find lenders aren't willing to value your Beanie Baby collection at the high price you know it would fetch if only people realized how valuable it may be someday. I've reluctantly had to remove "Admiral of the Bolivian Navy" from my résumé. We've all had to make hard concessions to reality. Why shouldn't banks?

Thanks to Rob McMillin for the find.