Bank stocks' salvation: fudging the books?
Anybody who keeps two sets of books is cheating. At least, that's the way it used to be.Skip to next paragraph
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Now, within a little more than a day, the world's best-known investor, the head of the Federal Reserve, and the chairman of the House financial services committee have hinted that banks could maybe, sorta, kinda report more than one number for the value of some of their assets.
The idea that banks could fudge the numbers didn't sink stock markets. They soared, led by financial stocks, on news that short-selling might be reined in and that profits might be stronger than expected at Citigroup. The Dow Jones Industrial Average rose 5.8 percent to close at 6926.49; the Standard & Poor's 500 index rose 6.4 percent to 719.60; the NASDAQ climbed 7.1 percent to 1358.28.
The enemy: investors?
Still, the rally is a little curious. Scared investors seemed soothed by the thought that regulators would ignore the values they've set. What's the message: Save us from ourselves?
The issue is the "mark to market" rule – the idea that companies should be completely transparent about asset values by pegging them to what the markets say they're worth. But critics have pointed out that markets have become so skittish about the value of some of those bank assets that the rule has pushed many banks to the brink of insolvency.
That seems unfair.
Easing capitalization rules
"I'm sympathetic," investor Warren Buffett told CNBC in a Monday interview. "The best way to handle that, though, probably still, is to have the mark-to-market figures, but not have the regulators say, 'We're going to force you to put a lot more capital based on these mark-to-market figures.' "
On Tuesday, Fed Chairman Ben Bernanke also suggested giving banks some wiggle room: "Given what's going on in the world, we should look to identify the weak points of mark to market and try to make some improvements on a more expeditious basis."
Those comments prompted US Rep. Barney Frank, chairman of the House financial services committee, to suggest that improvements could be made to the rule. The committee plans about 10 hearings this month on the rules and other issues, Reuters reported Tuesday.
It may be the kind of fudge that cures Wall Street's blues.