May 28, 2009


Capitolism: Bankers' Paradise (Christopher Hayes, June 8, 2009, The Nation

[I]n the midst of a global financial crisis largely abetted by the opacity of bank balance sheets, Congress, at the behest of Wall Street, bullied FASB into changing the rules so companies could make their balance sheets more opaque.

If you believe that collective manias can produce systematic mispricing (like the housing bubble), you won't find the banks' complaints implausible. But whatever drawbacks there might be with mark to market, the alternative--allowing banks to decide what their securities are worth--is certainly worse. "My fear is that you can't trust the banks to decide if the loan is going to be impaired," said a hedge-fund analyst who has studied the issue.

The technical merits of the accounting change aside, the procedural precedent--Congress stepping in to push a change in accounting standards--is far more disturbing. There aren't many industries able to manipulate the measurements used to assess their worth. "There's a heck of a lot of folks in Washington that mistake standards as policy," one FASB official told me. "It's not policy. It's about measurement."

Democratic Representative Alan Grayson of Florida, who opposed the change, made precisely this point during the hearing, joking that changing accounting rules to deal with depreciated assets was like dealing with cramped airline seating by redefining the size of an inch.

The partial relaxing of the standards was a victory for the banks, but they're still not satisfied; they continue to push the committee for another hearing and more rule-relaxing. And there is no organized, powerful opposition to their demands. In the case of mark to market, the banks faced the opposition of institutional investors who control more than $3 trillion, not to mention Tim Geithner and Ben Bernanke. They still won.

"These members of Congress are being told what it is the banks want them to hear without having an effective counter," says Allen Weltmann, a senior adviser at FASB. "It's not unique to this issue--it's typical of Washington on matters like this." In the absence of broad-based organized opposition, the president stands as just about the only possible counterbalance. The one legislative battle the banks have lost, over a credit card reform bill recently passed by both houses, was also the only bill on which the White House expended any real political capital. But the president, to put it charitably, tends to pick his battles, so relying on the White House isn't a strategy for success. Battles over the future of finance capitalism continue to be shockingly one-sided affairs. Unless and until this dynamic changes, nothing else will.

Posted by Orrin Judd at May 28, 2009 7:57 AM
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