We liked the happy fantasy better...
That seems to be the thrust of the SEC's recent "clarification" on mark-to-market standards for illiquid securities. Funny how everyone loves marking to market on the way up (when "profits" can be booked, bonuses paid on those "profits," and capital deployed according to inflated estimates of asset value), but no one is too happy when things move the other direction.
I *think* I even heard a former FDIC chair on the news claim that mark-to-market accounting is to blame for the current credit crunch, and that this is a "manufactured crisis." (Don't quote me on that, as I was finishing a glass of cheap, Argentinian red when the news came on.) Here is a story attributing that line to California Congressman Darrell Issa. Maybe he's the one promoting this idea.
I am no expert on accounting, and I am sympathetic to the view that overly-strict rules could cause trouble for banks and others when securities that are temporarily impaired have to be marked down and therefore force margin calls, necessitate capital raises, liquidation of other assets, etc.
However, it seems to me odd to presume (as the SEC clarification appears to) that banks, insurance companies, and other holders are being unduly pessimistic in valuing their securities, and need a reminder that they can make up better numbers for this stuff. Is anyone really going to take a worst case scenario view, especially when it might start a financing death spiral for the company?
Anyone out there doing any accounting on toxic debt? (Voices against here.)