Mark-To-Market Reform Undermines The Geithner Plan

FASB is set to issue a new set of guidelines tomorrow that will give banks more flexibility on mark-to-market issues.

Basically, they were browbeaten by Congress into doing something, probably because their constituents heard that mark-to-market was causing the crisis.

The problem, as the WSJ points out, is that it undermines the Geithner public-private partnership, which is meant to recapitalize the banks while also providing an objective measure of bank capital levels.

The best argument in favour of the Geithner plan is that it will provide an objective test of bank health. Sure, there’s a taxpayer subsidy, but once it’s done, you’ll be able to say yes/no on whether a bank can make it or not.

But after tomorrow, the fudge factor is back. The move towards transparency will be undermined by a move towards opacity and fantasy. We still won’t know how honest the banks are being, because they’ll likely use plenty of creativity when deciding what assets they sell, and which ones they simply reprice under the new rules.

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