PASSIVE ACCOUNTING ALONE IS NOT PRE-EMPTIVE ENOUGH
Coupled with an aggressive - repeat, aggressive - intervention to hasten, to accelerate the clearing of bad mortgage debts / foreclosures, the end of mark-to-market might make sense (it's too late to use it as a way to halt a panic, if it was, in fact, ever suitable for that).
Otherwise, Geithner's critics are going to say he went for the "Japan option", and what can I say to them? That it's okay to focus on cash-flow "realities"? That might not carry the day...
But Treasury officials would not comment on reports Thursday that changes were being considered to the current accounting standard that requires banks to carry assets such as mortgage-backed securities on their books at fair value, a process known as "mark to market."
More:
Two things.
Given that the foreclosure problem, even under "aggressive" scenarios that involve the ability of bankruptcy courts to modify loans, is one that can be eased but not accelerated, these bleeding assets will be an open wound on bank's balance sheets for a long while. We don't know how bad or how long it could get. If you take a guess of 8+ million foreclosures, then we may not be halfway through, even though the housing market turn was in 2006!
Second, moving to mark-to-market is a signal that the problem is either small enough to 'work through it', in the time and money that you have to stimulate demand for the economy - about 18 months, under the current stimulus plan, as scored by CBO. Or, it means that the problem is too large to handle, 'all at once', toute suite. [There is not enough public transparency, perhaps, to have a position 'in the middle' of those two...].
The first looks like overconfidence, in the absence of some hard-hitting estimates of what is required. The second looks like a bad signal to send, possibly. I'd much prefer an aggressive approach, like putting some real Treasury money at risk and leveraging it via the Fed. It keeps the Fed in its role of 'deep pockets' and it keeps the banking system as close to a transparent, functioning arm of the economy as possible.
But, I've said too much already...
