Mark to market madness!
Everyone suddenly has it, it’s like a contagion spreading across the political population of the western world. They’ve got the madness that says suspend mark to market accounting.
Hank Paulson has suggested its an option in his $700bn rescue package for the US economy, while an alternative plan from a minority group of Republicans has simply said it needs to go.
Here in the UK George Osborne at the Tory conference got infected overnight and yesterday said it should be suspended for three months.
Politicians have well and truly got the accounting bit between the teeth and for the time being at least don’t want to let go.
And this is peculiar because frankly every regulator going has given its approval to mark to market or fair value.
It strikes me that all these plans would only add to the confusion for investors. This week JP Morgan analysts wrote that blaming mark to market/fair value is like blaming a doctor for telling you you’re ill. The think tank, The Centre for Audit Quality, pleaded with Congress to reject suspension plans. Federal Reserve chief Ben Bernanke has supported it, the IMF has approved it, standard setters stand by it, I imagine if you asked the Dalai Lama right now he would give it the nod.
But politicians, well, politicians see things differently. A contact inside the IASB, the protector of fair value for most of the financially savvy world, admitted that yes, the regulators were onside but, ‘when politicians get involved, it’s difficult to predict the outcome.’
I’ll say it is. While in the US the calls for suspension are now vociferous, there is little or nothing on paper at the moment about what would replace it. Zip, as they might say.
Over here The Tory three month plan seems, well, bizarre. Like the crisis would last just another quarter? Which crisis is Osborne dealing with? And the alternative? Detail is frankly scant, but it seems to be to allow banks to value assets at the price they expect to get over the long term. Like we have faith at the moment in letting them work that out.
I’m with BT chairman and former KPMG chief Sir Mike Rake on all of this. Hold your nerve, no knee jerk reaction to regulation and rules. Accounting is only the means of delivering bad news, not the cause of it. Running from mark to market or fair value will only make the financial sector look as if it likes living in denial. Now is not the time to duck the facts.