John At The Center

Many politicians and pundits blame fair-value accounting rules, also often called mark-to-market rules, for worsening the current crisis. Attaching distressed market values rather than a higher historical cost or long-term recovery value to financial assets, they say, has caused financial institutions’ capital cushions, as reported to investors, to collapse, unnecessarily overstating the risk of insolvency.

But if a financial firm holds securities specifically for sale or in a liquid trading book, and finances itself partly or mainly with short-term borrowing, what do investors need to know? Pretty obviously, roughly what the securities would fetch if sold. Supporters of a fairly strict mark-to-market approach say its critics are blaming the messenger for problems of financial firms’ own making.

Now FASB appears to be caving under political pressure, at least to a point.

via Suspending Mark-to-Market: Bad Policy, Bad Time – DealBook Blog – NYTimes.com.