This week the FASB is considering relaxing the mark-to-market accounting rule, which would seem to undercut the US Treasury Department’s plan to help banks fix their balance sheets by ridding themselves of the so-called “toxic assets.”
As a taxpayer, I’d have to say that I prefer the FASB’s approach to the Treasury’s. The Treasury plan counts on helping banks rid themselves of problem loans by selling those loans to private parties (presumably including those evil hedge funds), which would provide a limited amount of equity investment, along with Uncle Sam as a co-equity partner and also the provider of the debt financing. If the investment is good, the private partner gets a good chunk of the upside. If not, We The People eat it.
It makes good sense that at some point those who had a hand in making these now-problem loans find a way to get out of their mess. Changing the mark-to-market rule in this context is not a bad thing.
Geithner’s plan is less appealing, but may very well improve lending (albeit at a handsome price). Though it simply looks like another way for the taxpayer to subsidize those who got us into this predicament.
It will be interesting to see how this plays out. One thing does seem certain: the taxpayer will lose.