That Wacky Leap of Faith

The Financial Accounting Standards Board (FASB) at long last eased the rule for valuing depressed long-term assets banks carry on their books.
Now bankers can declare that they’ll hang on to an asset until its value recovers. No longer will they be forced to value it at what it would sell for today on a sometimes nonexistent market.

Nonetheless the debate rages. The crux of the problem rests on whether you can trust the bankers. Some say no. Others say you need to take the leap of faith.

Putting a discussion of human nature and greed aside, rest easy. We can take the bankers at their word. As tempting as inflating the value of long-term assets in the short term may be, the FASB ensured that how banks value these asset will be on balance sheets for the whole world to see. In the current climate the number of bankers willing to defend a bogus valuation to the investment community is few and far between indeed. Besides, we really don’t have a choice.