This is not hard

We're being played for fools again. The Financial Accounting Standards Board just relaxed its "mark to market" rule. Instead of forcing banks to value assets what they would really bring on the open market, the bankers get to set the value -- i.e., at bubble levels. At the least, this will bollix up the Geithner bailout plan, giving banks no incentive to part with "toxic" assets that are suddenly Chanel again. At the worst, it will create another bubble. It's already produced a sucker's rally on Wall Street.

As for that bank plan, Treasury Secretary Tim Geithner has produced something that sticks the taxpayers with most of the risk and does nothing to deal with the underlying problem. In many cases, these "assets" aren't. At any price. The bankers made bad decisions and we're still bailing them out. Not mad enough? Now that you own Fannie Mae and Freddie Mac, you'll be glad to know that you'll be helping to pay $159 million in retention bonuses. And we want to retain these idiots...why? Let them take their "talent" into a job market with millions looking for work. Could an AIG or Fannie executive even count change correctly at McDonald's? ("Sorry, sir, that quarter I missed is now a derivative.")

Yet even the reformers can't get their acts together. "Populist rage" dissipated quickly -- that especially happens when people are faced with problems that seem impossibly complex. These are complex problems, but some solutions with proven records could be implemented quickly.

1. Return tax rates to the Eisenhower era (90 percent for the top bracket, ) -- or the JFK era after his tax cuts (70 percent) -- and aggressively close loopholes. End of executive compensation problem, income inequality problem, and a beginning on the revenue needed for infrastructure, health care and education.

2. Unwind most derivatives and ban them from banks.

3. Lower leverage, both for banks and other corporations.

4. As I've said before, institute a 21st century Glass-Steagall to wall off banking from Wall Street speculation (which, properly regulated, is needed), and break up the big, systemic risk banking companies.

There. Easy. Why can't we do it? The biggest impediment is not the increasingly irrelevant GOP. It's the powerful special interests with their wealthy lobbying efforts that sandbagged FASB. So the band plays on. They think we're stupid.

Comments

[soleri]

More evidence that Democrats lack a clue, and that the Kenyan is in way over his head.

[Emil Pulsifer]

USA Today recently published an editorial, "Investors, beware" arguing against the accounting rule revisions. They blamed pressure placed on the "supposedly independent board" (FASB) from the banking industry's backers in Congress, including "Democrats with financial firms in their states and districts" and "a large number of Republicans who have latched onto the argument that relaxing mark-to-market would lead to economic recovery".

http://blogs.usatoday.com/oped/2009/04/our-view-on-accounting-standards-investors-beware.html

The New York Times published a story on the changes in the Business section (print edition) on April 1st, a truly illuminating piece by chief financial correspondent Floyd Norris called "Making Bank Losses Vanish".

The Times article points out that the revisions are unpopular among a number of investors, business leaders, and even many banks. They were rushed through after taking just ONE DAY to review comments on the proposed revisions.

Speaking of stupidity, the Times piece also includes a hilarious example of a letter offered to the FASB in support of the rule changes, from a group calling itself the Georgia Affordable Housing Coalition, which was "evidently solicited by banking organizations".

Its opening paragraph states: "This letter sets forth the comments of [insert name of organization here] regarding these proposals."

http://www.nytimes.com/2009/04/01/business/01place.html

Norris has a follow-up piece, this time in his online NYT blog, in which he states that the rule change "came after a subcommittee of the House Financial Services Committee made clear that FASB could be destroyed if it did not knuckle under to the banking lobby".

http://norris.blogs.nytimes.com/