Spin Cycle

First story:

SEC, FASB Likely to Resist Calls to Suspend Fair-Value Rules
c.2008 Bloomberg News
By Jesse Westbrook
Sept. 30 (Bloomberg) — The U.S. Securities and Exchange Commission probably will resist
calls to suspend the fair-value accounting rules that some members of Congress blame for
exacerbating the global financial crisis, people familiar with the
matter said.
The SEC and Financial Accounting Standards Board instead said banks should apply rules
that require them to review their assets each quarter and report losses if values have declined,
according to a proposal released today. A suspension isn’t being
considered, said the people, who declined to be identified because the plan hasn’t been
completed.
Congressmen, banking lobbyists and companies including American International Group Inc.
have urged the SEC to place a moratorium on fair-value accounting, saying it forces firms to
report losses that they never expect to incur. Federal Reserve
Chairman Ben S. Bernanke and other proponents say a suspension would erode confidence that
firms are owning up to losses.
“In the past couple of weeks, fair-value accounting has been under attack,” JPMorgan Chase &
Co. analyst Dane Mott wrote in a report today. “Blaming fair-value accounting for the credit
crisis is a lot like going to a doctor for a diagnosis and
then blaming him for telling you that you are sick.”
SEC spokesman John Nester declined to comment. FASB spokesman Neal McGarity didn’t
return a phone call seeking comment.
House Rejection
Todd Tiahrt, a Kansas Republican, said the House of Representatives probably would have
approved legislation authorizing a $700 billion bailout of financial companies yesterday had the
measure included a suspension of fair-value. The House rejected
the measure 228-205.
It would “easily” have passed if the rules had been suspended, Tiahrt, who opposed the
legislation, said in a Bloomberg Television interview today.
Bernanke, by contrast, said in Sept. 23 testimony before the Senate Banking Committee that if
regulators repeal the rules, “nobody knows what the true mark-to-market price is.”
The SEC, in its guidance, may say companies can rely more on their own judgments, such as
expected cash flows, in determining the current value of assets that aren’t trading, according to
today’s proposal. The agency may also say that price quotes
provided by brokers when markets are frozen may not be the most reliable means of
determining how much securities are worth, the people said.

Second story:

Government to clarify accounting rules for banks
WASHINGTON (AP) — Federal regulators are clarifying accounting
rules for banks that could help boost the industry’s balance sheets
and provide needed relief in the financial crisis.
The Securities and Exchange Commission issued some
clarifications to the current rules Tuesday, and said more detailed
guidance is coming later this week from the Financial Accounting
Standards Board.
A possible addition to the $700 billion bailout bill being
considered by Congress would reaffirm the authority of the SEC to
suspend rules that require banks to value their holdings at current
market prices, even if they plan to hold the assets for years.
The banking industry has been lobbying for a suspension of the
so-called “mark-to-market” rules as many of their mortgage-backed
assets have plummeted in value.
Still, the American Bankers Association immediately applauded
the regulatory action, saying the new guidance “will help auditors
more accurately price assets that are difficult to value under
current market conditions.”