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Suspending regulatory capital requirements is more viable than adjusting mark-to-market accounting rules and therefore a better way of approaching the ongoing financial crisis, said James Chanos, Kynikos Associates president & founder.
“It’s much easier to do that globally than to tinker with everybody’s books,” he said.
If accounting rules are altered, said Chanos, investors will pay a lower multiple on reported earnings. Accurate data is also essential in restoring investor confidence in the markets, he said.
“Don’t water down corporate accounting,” he said. “Accounting is destiny. And companies, like people don’t often change their spots.”
Meanwhile, Treasury Secretary Tim Geithner’s toxic-asset plan is a step in the right direction, said Chanos.
“What the Treasury and the government is learning is that the more details you tell the market, the better off you are,” he said.
Investors will have to come to grips with the fact that it’s Washington and not the private sector that is guiding the markets forward, Chanos said. In fact, government intervention will close the gap on the bid side, he added.
“Cheap financing, the guarantees will move that up,” said Chanos. “Whether the banks will be willing to sell by dropping the offer side of the market, that remains to be seen.”
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