Everyone wants to have their confidence restored in financial institutions, but when I read headlines like, “SEC Loosens Accounting Rule Banks Blame For Crisis“, I have to start seriously questioning the oversight role the SEC has lackadaisically administrated and the devious flexibility that very lack of supervision gives banks. What the above headline and the linked article illustrate to me is that the SEC had no handle over what the assets these banks held on their balance sheets may have been worth and now that they’ve taken a peak apparently they are not pleased with what they saw.
Hiding the assets from markets is only going to further ruin confidence. Now we can no longer trust any earnings from any institution that has exposure to troubled assets. Not only that, but we can expect them to artificially value the assets higher than their worth and foist them on the Treasury when the TARP (Troubled Asset Relief Program) begins their auctions or direct purchases.
This is a major breach in transparency and a move in the opposite direction from finding a conservative and clear accounting standard that institutions should be held to. The opacity of today’s bank balance sheets combined with the new ability granted by the SEC to mark assets as banks see fit make this investor lose all confidence in America’s banks. The situation here is too reminiscent of Japan’s “solution” to their own real estate bubble meltdown. We all know that Japan’s recovery, if one can even call it that, took decades and is still underway.
