Tricky Accounting Could Spark 'Catastrophic Change'
Monday, 21 Jun 2010 09:05 AM
By: Gene Koprowski
Federal regulators are lobbying for the return of mark-to-market accounting, the management method that was behind many of the “paper-based losses” that caused the stock market crash of 2008, writes columnist Steve Forbes.
“The FASB — with the passive connivance of the SEC, the FDIC and others — is set to bring back mark-to-market accounting with a vengeance,” writes the columnist in a recent edition of Forbes magazine.
“This time all loans, not just securities, will be subject to these so-called fair-value rules. The immediate impact will be to crush small businesses.
There is no real market for individual bank loans."
Forbes writes that bringing back this standard would be a “catastrophic change” for the U.S. economy.
“With a pre-Depression-era mentality of businessmen who thought protectionism would make them richer by stifling foreign competition, many auditors today are salivating at the fees they'll collect from the mammoth, laborious procedures necessary to evaluate millions of individual loans,” writes Forbes.
But just as protectionism led to the Smoot-Hawley Tariff, which triggered a global depression, which, in turn, damaged the protected businesses and others here and around the world, this “supertoxic” mark-to-market concept will severely stifle job creation and economic growth.
“We will enter into perpetual recession punctuated by brief spurts of growth,” writes Forbes.
“Mark-to-market is like being told to mark down the value of your house to a price that it will fetch within the next 24 hours.”
Other leading opinion makers agree with Forbes.
The American Banker, the trade journal, editorializes that regulators are “off-the-mark” with the mark-to-market push.
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