If at first you don't succeed at cleaning up your toxic asset problem, just change the rules. That seems to be the lesson from last week's action on the market. The Dow capped its best four-week performance since 1933. And the ASX/200 is up a nifty eighteen percent in the last three weeks alone.
--What changed last week? Nothing really, except the rules. The Financial Accounting Standards Board (FASB) in the U.S. suspended its rule number 157-e. That rule had required that banks value their assets using a mark-to-market method. In other words, banks had to revise the value of their their balance sheet assets based on the current market price for assets.
--Banks and others have complained that this rule distorts the price of assets for which there is currently no market, or which the banks intend to hold to maturity (meaning the current price is largely irrelevant). It's a clever argument.
--Behind it is the assumption that if the market were normal, the price of the assets would be higher. Therefore, because the market is not normal, the pricing information is incorrect. But maybe the market isn't spewing out bogus price information after all. Maybe the price of the assets is what it is because they are what they are: deeply distressed and careening toward a larger write-down.
--Either way, we've entered the age of Dr. Phil valuations. It's not about what the assets are actually worth. It's about your own feelings.