Monday, December 29, 2008

More M2M

Today's WSJ has another article about M2M that is confusing, to say the least.  The journal says that FASB is considering widening M2M to include loans.  Per the journal, "FASB taking a more holistic view of accounting for loans, bonds, derivatives and stocks."

Meanwhile, the blog WebCPA noted:
FASB decided to loosen rules that kept banks from accounting for the cash flows they expected from mortgage-backed securities and other assets during impairment tests when they are categorized as available for sale, rather than just as held to maturity.
Note the major disconnect -- The Journal is implying that held to maturity loans might be marked to market. Meanwhile, the FASB is actually modifying rules related to assets held for sale. Huge difference.

The only modification I would propose is to revise the way that credit derivatives indices are used to value structured investments like CDO's. Plus a complete review of the use of credit derivatives as market proxies.  As far as the Journal's views regarding "fair value" -- it is safe to say that the world is converging on standards, and US GAAP can't let the IASB be the only body working on this issue.

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