The Ghost of Fed Chairmen Past

Via TBP:

When challenging the former Fed Chair about the Volcker Rule, Sen. Mike Johanns (R., Neb.) learned why Tall Paul is not a man to be trifled with.

The Senator accused Volcker and the White House of trying to add onto an already confusing proposal. Volcker’s response was utterly classic:

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“I tell you sure as I am sitting here, that if banking institutions are protected by the taxpayer and they are given free reign to speculate, I may not live long enough to see the crisis, but my soul is going to come back and haunt you.”

FASB's Ruling: Does That Seem Right to You?

My initial take on the Financial Accounting Standards Board's ruling is that it's wrongheaded, allowing banks not to have to mark their assets down to market prices (the plummeting values of written-down toxic assets having caused the current banking solvency crisis):

Today the Financial Accounting Standards Board voted to let banks and other companies change the way they value assets. The idea is to give them a break from mark-to-market accounting, which requires them to price the assets at whatever they could sell them for now.

Lately, those prices haven't been so high. But what about when times are terrific, and the market value of assets is implausibly great?

"As it stands, the new accounting rules only work when the market is inactive, like we are witnessing at the moment," says Joshua Ronen, an accounting professor at New York University. "When a market is irrationally exuberant the market is seen as active, so this would not apply."

This means that banks can reap the benefits of high prices in a hot market, and limit their losses when the market dries up. Ronen calls this double standard the "idiocy of this guidance."

("Banks Get the Best of It" at Planet Money)

But then again, it could really help with the solvency problem:

Although it seems clear that the political pressure brought to bear on FASB helped expedite the decision, this seemed to be the direction that they were moving. Cynics will claim this is a thinly veiled attempt to disguise the seriousness of the financial crisis and losses being faced. On the other hand, there are many who see the mark-to-market as an unreasonable demand for financial instruments with no markets. Regardless though of the merits or de-merits, the net impact could help boost bank earnings, reduce the need for capital injections and may help encourage participation in P-PIP [Public-Private Investment Programs] and TALF [Term Asset-Backed-Securities Loan Facility] programs.

(Marc Chandler of Brown Brothers Harriman via Planet Money)

It'll be interesting to see how this works alongside Geithner's PPIP. Thoughts?