Thursday, April 2, 2009

Market rally

The stock market is rallying today:
Financial stocks led the rally, getting a big boost after the Financial Accounting Standards Board relaxed accounting rules forcing banks to value their assets at current prices. The change should help banks reduce losses.
And from another report:
The Financial Accounting Standards Board announced changes to accounting rules regarding mortgage-backed toxic assets on the books of many financial institutions. The rules, known as mark-to-market, were making it difficult for banks to value the assets and sell them at a fair value in the marketplace.

Investors greeted the rules change with a rousing move higher in the markets that had some talking about a long-term turnaround.

"These rules were absolutely the single biggest factor causing the complete turmoil in the credit markets," said Chip Hanlon, president of Delta Global Advisors in Huntington Beach, Calif. "This changes everything."

Wouldn't it be interesting if, when we get the time to view this panic and recession in hindsight, we decide that the panic and seizing up of financial markets would have been avoided if the mark-to-market accounting and capital requirements had been implemented in a different way? Think of the implications of the position that it was bad regulation that caused the mess.

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