Friday, March 6, 2009

Seeking a "Fair-Minded" Accounting Fix

Two items to review today revolve around the Congress starting to pick up on the changes that need to be made to "mark-to-market" accounting. Joe Rollins has written extensively about it in a previous post ("Mark-to-Market" - More Than You Ever Wanted to Know), and he makes some very good, common sense arguments on how and why mark-to-market has become an issue. Thankfully, we may now start to see some action to alter this problem.

While the House is set to "examine" mark-to-market, we hope this is the first step to actually making a change that is positive for the financial firms and will ultimately be positive for the economy and market.

House Panel to Examine Mark-to-Market Accounting

A U.S. House panel will examine mark-to-market accounting on March 12 to find "fair-minded, incremental and achievable fixes" to the accounting rule that has forced banks to write down billions of dollars in assets, a senior Democratic lawmaker said on Thursday.

U.S. Rep. Paul Kanjorski, chairman of the House Financial Services' capital markets subcommittee, said the hearing would try to balance the needs of investors and banks.

"While companies need stability, investors still need accurate information. We therefore cannot allow for fantasy accounting that wishes away bad assets by merely concealing them," Kanjorski said in a statement announcing the hearing.

Mark-to-market accounting requires assets to be valued at current market prices. In markets with thin or no trading, banks say they have had to slash the value of assets to artificially low prices.

"I want to find a way -- within the existing independent standard-setting structure -- to still provide investors with the information needed to make effective decisions without continuing to impose undue burdens on financial institutions," he said.

U.S. industry groups have urged the Securities and Exchange Commission and the Financial Accounting Standards Board to modify or suspend mark-to-market accounting, saying it is undermining the government's multibillion-dollar effort to stabilize banking. The SEC and FASB are working on more guidance to help banks determine the value of an asset when there is little or no market trading.

Source: Reuters

These Stocks Could Skyrocket 100%, Says Jon Najarian

On CNBC’s “Closing Bell” on March 4th, Fast Money contributor Jon Najarian told Dylan Ratigan he sees a catalyst out there that could lift banks as much as 100% - and as soon as next week.

The catalyst involves mark-to-market accounting; which has been blamed for forcing banks to record billions of dollars in writedowns.

According to Reuters, a U.S. House Financial Services subcommittee is expected to hold a hearing on mark-to-market accounting rules as soon as March 12. The SEC's chief accountant and the chairman of the Financial Accounting Standards Board (FASB), will be asked to testify, the report said.

If that meeting results in the government relaxing mark-to-market rules, Najarian thinks the stock market could explode.

He says, “if the government relaxes mark-to-market for 12 to 18 months you could see financials move 100% in a matter of hours.”

And he goes on to say, “In fact, I hope you’ll replay the soundbite because if the government relaxes mark-to-market accounting a number of banks stocks will be unbelievable values at these levels.”

But that's not all. Najarian thinks the move could not only light a fire under banks, but the entire market. “If that Reuters report above is right there’s a very good chance the entire market will get a big lift.”

Again, the date to watch is March 12th.

Source: CNBC

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