This is a nice piece on Chanos saying them that executives at AIG (AIG) did not really know what they had on the books then. He also comments are Treasury’s new plan for “toxic assets”.
He makes the sobering point that “the only things are getting done are those with government assistance”. That is not good news as government cannot continue to make all markets.
Chanos also had an op-ed in the WSJ today:
In it he defends mark-to-market accounting but does admit some alterations to it are necessary.
Unfortunately, the FASB proposal on March 16 represents capitulation. It calls for “significant judgment” by banks in determining if a market or an asset is “inactive” and if a transaction is “distressed.” This would give banks more discretion to throw out “quotes” and use valuation alternatives, including cash-flow estimates, to determine value in illiquid markets. In other words, it allows banks to substitute their own wishful-thinking judgments of value for market prices.
The FASB is also changing the criteria used to determine impairment, giving companies more flexibility to not recognize impairments if they don’t have “the intent to sell.” Banks will only need to state that they are more likely than not to be able to hold onto an underwater asset until its price “recovers.” CFOs will also have a choice to divide impairments into “credit losses” and “other losses,” which means fewer of these charges will be counted against income. If approved, companies could start this quarter to report net income that ignores sharp declines in securities they own. The FASB is taking comments until April 1, but its vote is a fait accompli.
Obfuscating sound accounting rules by gutting MTM rules will only further reduce investors’ trust in the financial statements of all companies, causing private capital — desperately needed in securities markets — to become even scarcer. Worse, obfuscation will further erode confidence in the American economy, with dire consequences for the very financial institutions who are calling for MTM changes. If need be, temporarily relax the arbitrary levels of regulatory capital, rather than compromise the integrity of all financial statements.
Regarding mark-to-market, I do not see too many market participants backing it 100%. All those I have seen favor some modifications to it, the argument seems to rest of what or how much.
Disclosure (“none” means no position):none
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