FASB Rule Changes

The FASB rule changes adopted today are very interesting. In case you missed it, the changes, allow the assets to be valued at what they would go for in an "orderly" sale, as opposed to a forced or distressed sale.

I find this interesting because this seems to be contrary to the spirit of transparency. If I understand this correctly, under the new rules banks will essentially be able to make up whatever valuation they find appropriate instead of using information from the markets. It seems to me exactly the kind of mistake you can expect to be made in a crisis. Congress pressured FASB to make this change with the hopes that increased valuations would provide banks more capital to make more loans. Of course, the problem it creates is that if banks are allowed such discretion to value assets we open ourselves up to even more shenanigans in the future.

It is somewhat tangential to investor relations, but we at Target 3 believe that transparency is, on the whole, a good thing.