Happy in the despair over the miserable jobs report (not only did we lose over a million full time jobs last month, employers are still cutting hours and people are still filing for unemployment) was a jump in stock values. Hooray?!
Put down your party hats.
The stock market could have been rallying on a politically driven numbers game; nothing seemed to have fundamentally improved.
Here is the story.
On Thursday April 2, the serene and independent “Financial Accounting Standards Board” did something not so independent and calm: they voted to allow banks to move off “mark to market.” In other words, banks can now use their internal models to value their assets instead of using market values. To me it sounds like the same old problem. As Saturday’s Financial Times asked, “Are we back to flair value and marking to myth?”
A phlegmatic analyst, Jennifer Thompson, assured reporters Thursday “There’s no material change to FASB’s original statement here. There is a clarification, but it’s a more subtle change than people think.”
Was she wrong!
Subtle was not the effect. Friday the stock market jumped, the Dow went over 8,000, because the bank assets look healthier due to the FASB change. Let’s watch the feathers fly as more and more people call this a deeply political and reckless move.
Not fudging asset values is exactly our earnest Treasury Secretary’s controversial aim in the plan to give easy-term loans to hedge funds and private equity firms so they can buy $1-trillion of so-called toxic assets from banks. The Geithner plan allows banks to auction off hard-to-price assets in a big eBay for bank assets. The big difference between eBay and Geithner’s eBay is that not everyone can participate. See one of the first articles explaining the plan in The New York Times by Andrews, Dash, and Bowley.
The bank eBay-like auction was supposed to help big-time. The bidding would get to “real prices,” which would unstick stuck buyers from their paralyzing gloom, making asset prices “artificially” low. If the asset values are too low, the reasoning goes, banks can’t beef up their capitalization to carry on and do what banks do — loan money.
The Depression of 2009 is getting scarier, and I have to sympathize with the regulators. If a big sleepy train conductor was making the train run off the tracks, I’d probably be poking wildly with all my sticks too. But poking in desperation is a bad plan A or B.
