This relaxation is, politically, a step back from the transparency drive that followed Enron/Worldcom. It is not so much changing the rules, rather allowing the rule that distressed sale prices need not be considered the market price required to mark to.
It comes too late to save the grand merchant banks of Wall Street, but the thousands of regular American banks will be much better able to trade their way out of the current difficulties now. These banks will revalue underperforming CDOs and report profits or at least much lowered losses. It won’t unclog lines of credit but it will cut the hysterical headlines of record losses. Investor will feel better about their investments in the same way they feel good about an underwritten dividend (“nice div yield” they think to themselves).
Today’s Aust Fin Review has a quote in article about this mark-to-market change, two JPMorgan analysts argued that “blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and them blaming him for telling you that you are sick”. I would pose the flip side of that, can we blame someone for catching a cold- sure they could have eaten more fruit and got more sleep, but if a lurgie is going around you’re gonna get at least a touch up.
Chinese (govt-owned) banks have for years carried around massive non-performing debts like Americans have had to impair in the last year, the People’s Republic started using their banks to subsidise lossmaking rustbelt industries instead of funding their prop-ups from the state budget. We didn’t hear about it because there are no mark-to-market reporting requirements in China.
We all know that the credit crunch and this bear market is far from over, but to quote Churchill November 1942 “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”. Markets lead the real economy, we’ve had market crash (sortof ) but no recession yet. One more year of bum market while the world recession starts off then the market will come back (recession till end of 2010 I reckon, gonna be longer than the usual ones).
