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FAS 157 Could Cause Huge Write-offs

Banks may be on the hook for untold billions because the new rule makes it harder to avoid mark-to-market pricing of securities.

Stephen Taub, CFO.com | US
November 7, 2007

True enough

If fair value is considered to be the bid, then fair value is the price the dumbest buyer will pay.

Posted by Roland Cycan | January 13, 2009 09:37 am

Disaster

If the world has not realized the financial disaster in the year since this has been inacted, is will soon. Forcing the valuation of assets in a market where there is temporarily no buyers is insane. It sounded like a good idea but si unrealistic in an economic downturn.

Posted by John Hawkins | November 25, 2008 08:05 am

valuation ranges

In various degrees people want .... (a) conservative numbers (b) smooth reported earnings (whether real or not. The report is often more important than what is being reported on.) Value assets near the low end of a range. Report the range and the chosen value. If the range falls but the assets value is still within the new range, keep the reported value stable. Again, report the range and the value. Reverse the logic for liabilities, but value liabilities near the high end of a range. Again, report the range and the value.

Posted by Roland Cycan | November 08, 2007 11:07 am

Level 1 is more misleading

Fair value using Level 1, market quoted values, is far more misleading than is generally thought. Ususally, the market setting the price for a security is only a extremely small percentage of the outstanding security. To assume that your holding will trade for that price is wrong. Should you choose to sell, the larger your holding, the more impact that sale will have on the market price. It will still require locating a willing seller, which may not exist for the quantity you hold, and then agreeing upon a price. Hence, if Bill Gates' foundation chooses to liquidate its holdings of Microsoft stock, the value it receives will be significantly less than the current market quote. Also, remember, Fair value does not consider the selling costs. By the FASB's own admission, the "fair value" is not the realizable value that most people consider to be the fair exchange value. No, level 3, level 2 and level 1 fair values are all misleading, and only blue sky theoreticians would think otherwise.

Posted by Charles Smith | November 08, 2007 10:05 am

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