Mark To Market accounting Relaxed…has anything really changed?
So now companies have the same assets, but they will look different on the balance sheets of companies like banks with ‘distessed’ assets. The stock market has already discounted for these assets with their own valuation models so the fact that these changes will now be reflected on the actual balance sheets will not really change anything although it is good for a ‘pop’ today in the market. This change was expected to happen so this is not exactly a shock and might have a limited effect on the market considering how much time the market had to rally before this announcement.
The moral of the story is that the banks had capital to lend before this change, the government gave it to them. Ken Lewis said this morning that the lack of lending is directly related to the quality of lenders and not the capital, due to the fact that there is now a ’smaller pie’ of quality lenders now, due to the current depression. So when will banks start lending? When the lenders are worth borrowing to. Will will that happen? When the depression is over. So….maybe we’ve been taking the wrong approach by giving the banks money and maybe other actions should have been taken instead?
It seems like giving the banks money expecting them to lend was not only irresponsable from the standpoint that the government expected them to lend at the rate that they were lending at before, which drove us into the current depression, but it was like the goverment reassuring the banks that they were not in the wrong and actually had the power to cure this debt funded shadow economy. We’re still throwing band aids on the gaping wound instead of treating the real problems of the economic disease. These are all short term fixes just like the economic stimulus payments of 2008.
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