Transcripts

"Two Ways to Play"-Kevin Depew of Minyanville

SUZANNE PRATT: Bank asset prices and real market value. Tonight's "Two Ways to Play" says expanding mark to market accounting could nip a recovery in the bud. Here's Kevin Depew of Minyanville and Minyanville's Kevin Depew.

KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Earlier this year, the banking industry successfully pushed the Financial Accounting Standards Board, known as FASB, to relax so-called mark-to-market rules, giving banks far more leeway in valuing assets on their balance sheets. Mark-to-market rules require banks to value these assets at current market prices, but during the financial crisis, the market for many securities simply vanished. Now, right as the financial crisis is ending, FASB is considering applying mark-to-market rules to all financial assets. This would be nothing short of disastrous, plunging banks right back into the hole they were in a year ago. I agree, the expansion of mark-to-market accounting rules would almost certainly push banks right back to the brink of insolvency, but the reality is you cannot use accounting changes to recalculate your way to prosperity. The problem is we have a vast amount of debt in our banking system. The government knows this and in many cases is directly supporting this debt while regulatory bodies, such as FASB have allowed banks to overvalue it. Insolvent institutions should be allowed to fail. Banks should be required to value their assets at realistic prices. But because we have postponed reality for so long, it is doubtful we have the nerve to face it now.