Thursday, 2 April 2009

Accounting Rules Eased in the U.S. ... Finally

The U.S. Financial Accounting Standards Board decided to ease mark-to-market rules that banks say fail to work when markets lack of buyers. Well, as University of Chicago professor Eugene Fama used to spot, in markets characterised by ''fat tails´´ there are no buyers, normally speaking. Well, the FASB identified this, a bit late -- that is the problem of regulatory and oversight agencies in general. They are always late.

The changes approved today to mark-to-market rules will allow companies to value assets in such a way that the writedowns stemming from market declines on certain investments, including asset- and mortgage-backed securities, reflect those declines in a less violent fashion. We should expect the net income results of financial companies being boosted following the changes.

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