Word: illiquidity
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...Currency John Dugan, tells TIME he is in favor of letting the banks mark back up the value of some of their toxic assets. "I think there are some changes that ought to be made," Dugan says. Mark-to-market accounting is a problem, he says, for illiquid assets because "those things have just stopped trading altogether." Dugan does not support doing away with mark-to-market entirely; not even industry lobbyists want that. But his deputy will argue at the congressional hearings on Thursday that limited changes affecting the pricing of illiquid toxic assets should be made...
...Others seem to be coming around to the banking industry's position. On Tuesday, Federal Reserve Chairman Ben Bernanke said he would support changes in pricing illiquid assets. Also this week, investor Warren Buffett said in a CNBC interview that he would favor suspending the mark-to-market rules. Even the Securities and Exchange Commission (SEC), which has long backed these rules, recently asked the Financial Accounting Standards Board (FASB), a private group based in Norwalk, Conn., that sets accounting rules in the U.S., to look into the matter. FASB spokesman Neal McGarity says his organization is doing that...
...resistance? The FASB and the SEC say mark-to-market accounting is a key to the economy's transparency, and want to proceed cautiously before changing the rules for illiquid assets. Investors are already skeptical of bank stocks. Add more uncertainty to their books, and the shares might fall further...
...hasn't the banking mess been cleaned up? You have to do triage between banks that are illiquid and undercapitalized but solvent and those that are insolvent. The insolvent ones you have to shut down. You need more aggressive credit creation by the government, or you have to force the banks to lend. We're in a war economy. You need command-economy allocation of credit to the real economy. Not enough is being done. (See which businesses are bucking the recession...
...market - much like emerging investment funds in wine and fine art - as an opportunity to diversify, or seek "exotic beta," in finance parlance. Though real returns may occasionally hit the high double digits, says Shumba, investing here can seem like playing Russian roulette: the exchange is highly fickle and illiquid, with a total market capitalization that has fluctuated tenfold in the past year and a trading volume less than one-hundredth the size of the Johannesburg exchange (itself a modest operation by global standards). And then there's the risk that the government could simply confiscate your money...