I have long thought that the scuttling of mark-to-market accounting as codified in FASB 157 is one of the most overlooked causes of the sudden, almost overnight improvement in the state of the banking sector that started near the market lows in 2009.
It was also a prime, prime example of crony capitalism. The banks wanted to get rid of mark-to-market, they needed to get rid of it, because if they had to mark all the lousy, bad loans to anything approaching reality, we’d suddenly find ourselves with a lot of suddenly insolvent banks. So the banks leaned on Congress, Congress leaned on the FASB, the FASB quickly caved and today we’ve got a bunch of zombie banks on our hands complaining that they’re burdened by too much government oversight.
But ultimately, there will be reckoning. It may be a sudden panic and collapse, or it may be more subtle, a slowly crumbling edifice that nobody notices is crumbling until one day it’s gone. At some point, though, somebody has to pay the piper. Who do you think that’ll be?
Our elected and appointed officials, in our name, abolished accounting rules that were inconvenient. Turned Fannie and Freddie into massive Hoover vacuums to suck up every bad mortgage in the nation. Debased the dollar. Spent trillions in government money and guarantees to protect a small band of connected players. We haven’t charge a single responsible person with any crime, criminal or civil.
Know the saying about not being able to spot the mark at a card game? You’re the mark, bub.
Barry Ritholtz breaks this thing down. Please go read the entire post. Here’s a snippet:
Many of the bailouts, mortgage mods and behaviors we have today exist to serve a single purpose: To allow the banks to kick the can down the road as far as they possibly can when it comes top their dual portfolio of bad mortgages and bank owned Real Estate (REOs).
Consider how ironic this is: From the GSEs becoming a dumping ground for every crappy mortgage to the failed policy of HAMP/mortgage mods, to the arbitrage between the the Fed’s ZIRP policy and Treasury’s 10 year bonds, nearly every reaction to the financial crisis has been a willful, concerted effort to kick the can down the road.
Rather than go Swedish, and force a shorter painful pre-packaged bankruptcy process, we have opted to take the long slow route.
The problem is with this strategy is we have more cans than road.
(Now, really, honestly, I planned to write this before Barry did a post about my Cramer post; this isn’t some mutual admiration society (although I do know and like him,) and it’s not like Barry needs the traffic boost from us.)