Wednesday, March 11, 2009
Mark to Market Rule will be relaxed?
--One factor to explain relative high PE is M2M rule. M2M rule migh have exaggerated the loss in the downturn, pushing up the PE ratio. Wednesday, March 11, 2009 by Bill Swindell Senate Banking Chairman Christopher Dodd today said he is open to giving federal regulators additional flexibility to modify an accounting rule that many claim has contributed to the financial crisis by forcing firms to write down toxic mortgage assets to historic lows. Critics complain that under existing mark-to-market rules, banks are forced to value assets at current low values, taking billions of dollars in losses, even though in the long term these assets could recover. Dodd spoke favorably about the idea of lifting the rules at certain times of crisis. "You would have to define in some ways what [crisis times] are, so you don't interrupt the mark-to-market functions on a normal basis," Dodd said in remarks at the U.S. Chamber of Commerce. But he cautioned lawmakers to be careful if they weigh in, because authority over accounting standards lies with the Financial Accounting Standards Board. "I have been vehemently opposed to Congress getting into the business of accounting standards," Dodd said. SEC Chairwoman Mary Schapiro, whose agency oversees FASB, testified today before the House Financial Services Appropriations Subcommittee that her agency has launched a study on the issue and is offering additional guidance to firms on how to provide investors with greater disclosure on hard-to-value assets. (See related story, page 3.) At a hearing today, Schapiro said the Financial Accounting Standards Board has promised to issue mark-to-market accounting guidance in the second quarter for banks struggling to price assets, Reuters reported. Under the financial rescue package passed last year, Congress gave the SEC authority to suspend an accounting rule implemented in 2007 that provided a single, concrete definition for fair value. But the SEC has not acted on that option. The House Financial Services Capital Markets Subcommittee will hold a hearing on the issue Thursday. Jamie Dimon, CEO of JPMorgan Chase & Co. also called for modifying the rule today in a speech in front of the Chamber. "We have taken it to a ridiculous point," said Dimon. Meanwhile, Dodd said he remains unsure about giving the Federal Reserve the power to be the sole risk regulator for the entire financial system. The idea would be to ensure that the failure of one or two firms does not endanger the whole economy, as did Bear Stearns and American International Group. But Dodd was skeptical that Congress could create an entire new agency, calling it "a daunting idea." Dodd also refrained from endorsing legislation backed by Majority Whip Durbin and Sen. Charles Schumer, D-N.Y., to establish a new Financial Product Safety Commission, which would protect borrowers from deceptive loans just as the Consumer Product Safety Commission protects buyers from faulty toys, household products and other items. But he indicated that he sympathizes with the sponsors' goals. "No one suggests that the buyer is to blame for a toaster that catches on fire or a toy for your child that is contaminated with lead. Should it be any different for the borrower who takes out a mortgage or signs up for a credit card?" Dodd asked.