Mark to Market Accounting and your investments

The Financial Accounting Standards Board put forth FAS 157 ("Mark to Market Accounting") effective for public entities filing financial statements due on or after November 15, 2007. What did this seemingly innocuous rule do? It changed the way that companies (banks, insurance companies, brokerage companies and other public companies account for assets on their books). FAS 157 created a new definition of Fair Value as follows: "The price that would be received to sell an asset or paid to Transfer a liability in an orderly transaction between market participants at the measurement date". In times of illiquid markets, the price of these assets fall away and are valued at $.10 on the Dollar.

The Dow Jones Industrial Average was 13,110.05 on the day this went into effect. Since that time, investors have seen trillions of dollars of net market value evaporate with capital being raised and institutions such as Lehman Brothers, Merrill Lynch, Wachovia Bank being swept under into either bankruptcy or hastily arranged mergers. The DJIA closed today at 6,624 (March 6, 2009) and it is clear the Obama Administration is struggling to figure out what to do to stem the economic disaster that a declining stock market brings.

Here is something that can be done to stem the capital drain. Congress, in passing the Emergency Economic Stabilization Act of 2008, included a Section 132 which gave the SEC the authority to suspend Mark to Market accounting if they determined that it is in the public interest to do so. After losing 50% of stock market valuation since November 2007, isn't it well past time for the SEC to suspend FAS 157??

The answer is clear enough to me. Suspend FAS 157 and its Mark to Market consequences.