Bowyer: Mark To Market Still Lives (Unfortunately)
Mark to Market was upheld Friday.
No, it was not suspended as some media outlets had originally reported.
Yes, early Friday afternoon there were reports that the FASB, the board which determines the rules for financial accounting in the United States, had suspended the practice commonly known as 'fair value' or 'mark to market' accounting. This is false.
And still other outlets implied that although the rules were not suspended, they were nevertheless loosened somewhat. This is also false.
I talked to Neal McGarity, the helpful and gregarious spokesman for FASB, who explained that the board action today was a reaffirmation of a document released jointly by the SEC and the FASB on Sept. 30. "It's not a new stance or new material, it's cross referenced to existing material."
The problem here is that most journalists don't understand how FASB works.
The Financial Accounting Standards Board, is, well, a board. They vote on the proposals put before them. Since there had been so much confusion about the mark to market rules, the staff drafted a statement ten days ago, clarifying the existing rules. But that's not official until the board votes. Friday the board voted, and 5 to 0 they said, in essence, mark to market still applies, but where the market has broken down, financial officers may consider other factors.
In my opinion, that's not good enough.
The current environment is a mix of the storming of the Bastille and a Salem witch hunt. CFOs and auditors are going to want to be perfectly sure. After "Sarbox," the penalty for overestimation is measured in years served, not fines paid. Until the SEC suspends the rules, or failing that, provides some kind of safe harbor (a very clear set of rules which when followed keeps one out of cell block 8) the panic will continue.
Jerry Bowyer is chief economist at Benchmark Financial Network, is a member of the Kudlow Caucus, and makes regular appearances on CNBC. He also writes extensively on finance and history for the National Review, The Pittsburgh Post Gazette, Crosswalk.com, and The New York Sun. He can be emailed at email@example.com.