Great post title, huh?
I propose another rule standard for valuing a company’s assets that reflects my abilities to sell companies like hot cakes. I call it the SAS 69 rule. That means that an asset should be valued at whatever I think the highest price I could sell it for within the next 69 days. That’s much fairer and a more accurate reflection of the current possibilities when you trust in the genius of The Steve and our army of helpful souls at the Blackstone Group.
To the general public FAS 157 is an obscure obscurity, seldom heard and even less so understood, but it is becoming the posterchild for good intentions with catastrophic unintended consequences.
There is a campaign underway right now to get FAS 157 changed but I”m not so sure I would be quick to sign on to that initiative. While the current financial market turmoil may in fact be the financial equivalent of cutting off your arm to fix a broken wrist, it’s also not clear whether the long term gains in transparency that mark-to-market valuation reporting will provide offers the promise of a more healthy market at some point in the future.
Investment bank Goldman Sachs has been using mark-to-market reporting for years and as a result were better able to weather this latest storm, even if it came at the expense of unrealized paper profits in years past. Public companies have not been as aggressive in reporting asset valuations since the days of Enron and Worldcom, and as a result have been left largely unaffected by the core issues that drove liquidity issues in the financial sector.
Critics of FAS 157 assert that accounting rules have triggered a financial crisis (not to mention Sen. Chuck Shumer) but the fact remains that the losses that have been experienced are not academic but quite real. The question remains whether the accounting rules, FAS 157, accelerated the liquidity crisis.
As I said, I’m not sure where I come down on FAS 157 but if you are interested in this topic I would highly recommend that you watch this Charlie Rose interview of Jamie Dimon.