To be successful, drama and fiction rely on what is called a “willing suspension of disbelief.” Perhaps today we need a pause or a willing suspension in an accounting standard that is wreaking havoc. Mark-to market accounting was designed to give a “true” picture of value and thus increased transparency to anyone and everyone who cares. Yet, more than one economist and financial pundit has observed that today’s marks have most likely overshot “fair value” and that what we have instead is a grotesque carnival image of what the assets value will actually be upon realization.
It has been pointed out that AIG’s dilemma could have been far worse if its long term assets currently held at cost were required to be “fairly” valued in today’s firesale world.
Several years ago, commercial bank stocks were battered in the last great RE debacle. The bank where I worked saw its share price plummet to $8 per share, only to achieve $100 per share a few short years later. As an individual holder I did not have to write off my position in the public arena and was able to sit tight for a sunnier day.
If wishes were dreams and dreams were reality, I would get the Financial Standards Accounting Board on the phone pronto.
Gail Long is CEO of ACG Boston, a chapter of the Association for Corporate Growth. She previously was an Executive Vice President of specialized banking at Citizens Bank of Massachusetts, and, previously President of Citizens Capital, that company’s $500 million private equity subsidiary.