Memories of mark-to-market

It could be a new name of a sauce made by President’s Choice, but the raft of blow-out U.S. bank earnings this week justifiably turns the mind to “Memories of mark-to-market”. How long ago was it that our accounting Lords decided that M-T-M was the way to go? Not very long at all.

Did they listen to industry professionals when they professed that Fair Market Value accounting treatment was misguided (see prior representative posts “Accountants are failing investors with ‘fair value’ accounting” Aug 6-07 and “D’Alessandro: fair market value accounting is ‘perverse’” Sept 30-08)? Nope.

Yet with the quick return to massive profits at Goldman Sachs (GS:NYSE) and JP Morgan (JPM:NYSE), just seven months after staring down the rifle barrel of an economic depression, one might feel a little morose about the irony of that little understood Law of Unintended Consequences. Sure, the U.S. Congress was bang-on when it jaw-boned the Accounting Standards Board to amend the M-T-M treatment of illiquid bank SIVs, conduits and otherwise icky mortgage assets. But to not tie that to anything…?

Having achieved what we all needed last March (by avoiding a Depression), Congress set up many of the staff at the large U.S. banks (and i-banks hiding within a commercial bank’s chainmail) for what could be their most financially rewarding year ever. If they were mad about large bonuses in the face of a declining financial market, just think how cross our elected officials will be to find out that by waving their magic wand over the accounting industry, they’ve only restocked the coffers of the folks in the red suspenders.

MRM