So they needed a capital cushion--is that what you're saying?

This argument might be more believable if one were to consider what would have happened if they didn't change the "mark to market" rule. But I ask, what would have happened if they didn't get this bailout money but changed the accounting rules? I submit that things would have still been hunky-dory for them.

Before the change, banks were forced to classify these "toxic assets" according to their current market value. But after the change, the assets can be classified at historical cost, or what they were originally-priced. You can bet that ALL of the banks are taking FULL advantage of this newfound ability to transform "toxic" assets into hunky-dory assets. Once the toxicity is removed, then, from an accounting standpoint, it's just as if the crisis never happened.

Do you see what I'm driving at?

There needs to be a closer look at how each bank that has received money from the government through the TARP program and otherwise has benefited from the accounting rule change.

Accounting is how companies present their current financial status. It is the most measurable representation of economic reality possible. What the banks seem to be saying is that there are TWO kinds of reality going on--an accounting reality and some other reality that they want you to believe is there but somehow can't be captured in accounting? Now what is it? If it can't be captured within the rules of accounting, then to an accountant, it doesn't exist. What other reality are speaking of?

Differences in mark-to-market accounting vs. accrual accounting raise fundamental economic and financial questions that remain unresolved. These differences, by the way, arise in many contexts under the umbrella heading of value vs. earnings, or value vs. cash flows.

Example: should a retiree with a portfolio of muni bonds from cities and counties with no record of ever defaulting be overly concerned about the disruption in the market place impacting the value of the bonds? Cash is unchanged. Value is moving all over the place with market expectations and risk adjustments.

Should a bank manage earnings at risk or value at risk? Managing both implies a trade-off because you can't do both optimally.

The real world is more complicated than academic views of market value, because banks have many assets and liabilities where there aren't the conditions that are consistent with a true-market to market construct. (Example: checking accounts)

Checking accounts are too fluid to be classified as a liability, in my opinion. Something that changes constantly, like a checking account, cannot be an asset or a liability. Assets and liabilities are supposed be more solid. Assets and liabilities are like ice and earnings are like water. You can transform one into the other, but the 32 degree freezing point must be clearly defined.

Once the 32 degree freezing point is defined, then the whole discussion of value at risk and earnings at risk melt away.