2008-05-22 — ft.com
Bankers once again illustrate that it's good to be the king(s):
The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to value illiquid assets using historical, rather than market, prices. Under the plan, obtained by the FT, banks that decide to keep assets on their balance sheet would be allowed to sell them after two years instead of having to hold them to maturity.
This is rather insidious. The antidote to overly-aggressive mark-to-market valuation is usually hold-to-maturity -- or at least long term holding. Two years is not long-term. This looks suspiciously like an attempt to put off write-downs another two years. But if recovery comes through principal reductions more than consumer income expansion, banks (and their shareholders) will lose.
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