The Nonsense Over “Fair Value” Accounting Goes On As Banks Beg For Forgiveness

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American banks are still trying to move the goal posts in their favor on the accounting football field. Current rules govern how they set the value of assets on their balance sheets. The banking industry says these standards are too punitive. All that junk they have on their books should be posted at higher valuations. If that had been done long ago, the banking industry would never have gotten into trouble in the first place.

The SEC weighed in against the banks. According to MarketWatch, In its 211-page report, the SEC shot down the claim that fair-value accounting was the driving force behind U.S. bank failures, arguing that the accounting rules "did not appear to play a meaningful role in the bank failures that occurred in 2008."

The banks’ argument is bogus. Analysts who follow the industry and recommend the purchase or sale of stocks in the sector understand the rules. If the losses of the financial firms were based on mistaken rules, the issue would have been a matter of raging debate a long time ago.

Another factor in favor of the current accounting rules is that they apply equally to all banks. If a set of standards favored one company over another, there would be a reasonable case that relative values among banks were being distorted.

The banking industry would like to change the way that its assets are valued so it can be forgiven by accountants and shareholders. It could claim that the losses and falling stock prices of the last year were all a bad dream, one created by bad people wearing green eye-shades.

Douglas A. McIntyre