Has Obama said anything about the Rs' demand to bring back Enron accounting in the Credit Relief Bill

in the Credit Relief Bill?

IMO Barney Frank and other Democrats brilliantly placated Republicans' continuing demand for unwise changes in SEC accounting rules put in place after the Enron scandal..

Have you seen anyone in the Obama campaign comment on this issue? Have you seen Republicans mentioning "SEC Rule 157" in the MSM?

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Section 132 of HR3997 (voted down yesterday) merely "authorizes" the SEC to relax crucial accounting rules for banks. But this is a power the SEC already has and (wisely IMO) refuses to use.

"Maverick" Rs in the House would relax accounting rules by law. IMO such a law would be an extremely serious mistake, accelerating our progress toward the same kind of decade-long financial debacle Japan experienced. It would be the essence of what Paul Krugman calls "crony capitalism", further undermining confidence in a credit system now facing an unprecedented crisis of confidence.

Here's what a couple of the best finance blogs have to say about this accounting issue:

From http://nakedshorts.typepad.com/nakedshorts/2008/09/feel-free-to-make-up-numbers.html :

"Feel free to make up numbers September 29, 2008

... Bye-bye 157. The Andy Fastow Rules are back

SEC.132. AUTHORITY TO SUSPEND MARK-TO-MARKET AC-COUNTING. ..."

And, from http://bigpicture.typepad.com/comments/2008/09/fed-treasury-ne.html :

"That seems to be pulled straight from the Bank of Japan's playbook: Take the right downs later rather than sooner, once the market returns to normalcy. That's a deeply flawed philosophy.

Former SEC Chair Arthur Levitt lectures the Congress on why mark-to-market is so important. "That's why it's both dismaying and puzzling that as Washington debates the Treasury's bailout proposal, some of the largest banking and financial services trade groups are aggressively lobbying the SEC to suspend the mark-to-market, or fair-value, accounting standard currently in place, and to oppose any expansion of it.

To ask for a suspension in fair-value accounting is to ask the market to suspend its judgment. These trade groups claim that the fair-value accounting standard has distorted banks' balance sheets, and has contributed significantly to the market's volatility. On the contrary, that gets things backward. It is accounting sleights-of-hand that hid the true risk of assets and liabilities these firms were carrying, distorted the markets, and have caused investors to lose the confidence necessary for our markets to function properly.""

no market.

If there isn't trading in a security the market cannot value it. That is the problem with "mark-to-market", at some point in a crisis it becomes a measure of illiquidity and not the value of the asset itself.

The rule needs to be changed to reflect the exception we're in now. Getting rid of it entirely is wrong but leaving it is disastrous - for the situation we are in now.

As I understand things now, the SEC is going to issue new guidelines on interpreting the rule to allow the income from such assets to be reflected in the value rather than strict market value. More complicated than that but that's the summation.

I'd be happy with a 30 day moving average on the security for accounting purposes as well.

What is clear is that it is part of the problem in that it helps to spread the contagion in this situation where as in normal situations it is the right thing.

Needs a happy medium and the new guidelines should provide that.

marks are banks using now in their frequent reports to the SEC? Are they authorized to use models the way the five investment banks in the "Consolidated Supervision" program were four years ago? (See http://www.sec.gov/rules/proposed/s72103.shtml ). We know how that turned out; 3 of the five no longer exist.

whatever it sold for int he last fire sale before/while a firm was going under.

Meaning the firesale price of a desperate attempt to raise capital in order to meet reserve requirements.

That certainly doesn't reflect the value of the instrument but since the market for them has basically seized up no one is certain what a fair value for them is so no one is willing to get back into the market for them.

I suppose one way the government could step in and get the market going again is insure the security but only for 10% of face value. It would provide some measure of protection for the buyer and might get some sellers to come halfway in the new circumstance.

Certainly sounds cheaper then 700 billion outright buying the securities of unknown value.

but I found this interesting, from 2006.

Intelligence Czar Can Waive SEC Rules

Now, the White House's top spymaster can cite national security to exempt businesses from reporting requirements


President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.

Unbeknownst to almost all of Washington and the financial world, Bush and every other President since Jimmy Carter have had the authority to exempt companies working on certain top-secret defense projects from portions of the 1934 Securities Exchange Act. Administration officials told BusinessWeek that they believe this is the first time a President has ever delegated the authority to someone outside the Oval Office. It couldn't be immediately determined whether any company has received a waiver under this provision.

The timing of Bush's move is intriguing. On the same day the President signed the memo, Porter Goss resigned as director of the Central Intelligence Agency amid criticism of ineffectiveness and poor morale at the agency. Only six days later, on May 11, USA Today reported that the National Security Agency had obtained millions of calling records of ordinary citizens provided by three major U.S. phone companies. Negroponte oversees both the CIA and NSA in his role as the administration's top intelligence official.

http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?campaign_id=rss_daily,

has a great article on "fair value accounting" that House Rs want to get rid of. See http://en.wikipedia.org/wiki/Mark_to_market .

This issue applies to virtually every corporation; that's why it's so controversial.

IMO, the basic problem in the credit markets today is that there is no exchange on which CDOs, swaps, and other morgtage-related derivative securities trade. These assets are not like stocks on the New York Stock Exchange, where daily closing prices give every investor an exact value for his or her holdings.

The Enron scandal showed that "mark-to-model" rather than "mark-to-market" provides easy hiding places for accounting fraud. Last year, the Financial Accounting Standards Board defined "mark to market" or "fair value" in a strict new way, and the SEC directed banks to use the strict new rules.