I was speaking with two stock investment firm friends last evening and they warned me that the real "bailout" was going to take the form of a simple change in the accounting rules.

Quote
All year, many bankers have asserted that it was unfair that accounting standards required them to value mortgage securities they own at market value. The frazzled market, they said, was unrealistic about the long-term worth of those assets.

Markdowns of mortgage assets have, of course, devastated the finances of leading banks.

Some in Congress who agree with the banks now want to suspend mark-to-market accounting altogether and give lenders much more leeway in valuing mortgage securities at levels that, in theory, more realistically reflect what the assets will return over time.

Accounting purists say a rule change would raise the risk that the banks would resort to fantasy accounting -- "mark-to-make-believe" -- that would overstate the value of their assets to investors. Remember Enron Corp.?

Los Angeles Times

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