Why Go Back?

There were mark-to-market rules during the Great Depression. Franklin Roosevelt had the good sense to suspend them in 1938.  For the next 70 years? No problems. Then in 2007 the Federal Accounting Standards Board (FASB), went back to those halcyon days of 1936 and brought back mark-to-market accounting and forced banks to take losses before they happen.

You can burn a lot of calories wondering why the FASB didn’t leave well enough alone.

After a virtual banking collapse, in April of this year the FASB re-suspended the rules. And surprise, banks are suddenly in better shape. What’s more, it didn’t cost any one a dime, taxpayers have probably saved billions in bailout funds, and there is widespread optimism that the economy is turning around.

And oh yeah. The investments the FASB wanted downgraded by mark-to-market?  Using the same mark-to-market rules, they’re worth more, too.

So why does the FASB now want to go back yet again to an archaic rule that exacerbated the Great Depression and clearly made the Great Recession far worse than necessary?

We can only speculate. But it’s clear that more than a few FASB members are miffed that they look like they caved to political pressure. I agree that having Barney Frank and Paul Kanjorski in your kitchen isn’t fun, but do you really want to see banks and the economy crumble again?