A decade ago, Forbes magazine ran a famous old picture showing a tangled confusion of overhead wires darkening the skies above Wall Street in 1888.
The mess was caused by the 40 or so unregulated telegraph, telephone and electric companies competing in Manhattan at the time. But rather than let history get in the way of a political point, Forbes ran a caption identifying the poles as belonging to AT&T (a name not used until 11 years after the photo was taken), and suggesting that the pictured chaos was the result of monopoly and government regulation.
Politics aside, the intellectual dishonesty of this frosted me. (To be fair, Forbes did print my letter noting that it had the facts exactly backward.)
Fast forward to today's column by Steve Forbes applauding FASB's softening of mark-to-market accounting.
Here again, Forbes (the man, not the magazine) doesn't allow historical facts to get in the way of his opinion that rulemakers must be at fault for any wrong. Reality, of course, is more nuanced, and markets and their regulators are both capable of screwing things up.
Forbes says "mark-to market" was "enacted to prevent another Enron." In fact, Enron lobbied heavily for, and made highly creative use of, mark-to-market accounting. The Smartest Guys in the Room contains an unbelievable clip of Skilling joking about mark-to-market during a company skit: "We're going to move from market-to-market accounting to something I call HFV — Hypothetical future value accounting. If we do that, we can add a kazillion dollars to the bottom line."
Forbes is likely referring to FAS 157, a rule enacted, long after Enron's demise, to standardize fair-value measurements. But if so, Forbes, who ought to know better, joins Congress and others who seem to think that the standard actually launched fair-value accounting. In fact, FAS 157 did not require any new mark-to-market accounting when it was issued, nor did FASB directly change it last week, although Forbes is correct that FASB softened overall fair-value accounting requirements.
Forbes also writes "Can you imagine writing down a home you hadn't sold? It would bankrupt you." That's a curious analogy from someone who, I'm guessing, hasn't refinanced lately.
My wife and I (like most Americans) don't have independent investors interested in our well-being. So initially, we only reported changes in our house's value to ourselves. ("Guess what Zillow says our house is worth now?") We took the information seriously, but no surprise, decided to stay invested in ourselves for the long-term.
But when we did want outside investors — in this case, to refinance our mortgage — the change in value mattered. Even with no change in our revenues, the fact that the fair value of our largest asset was less than the last observable sales price made it tougher to convince a bank we were a worthy investment.
So, yes, I can imagine writing down a home I haven't sold, and I find it hard to feel sorry for banks that must do the equivalent. They certainly expect it from me. |
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