Relaxing mark-to-market accounting rules will cause financial stocks to skyrocket, predicts Jon Najarian, investment commentator and co-founder of optionMONSTER.
“If the government relaxes mark-to-market for 12 to 18 months you could see financials move 100 percent in a matter of hours,” he said on CNBC’s Closing Bell.
In fact, a rule change could lift the entire market.
March 12, when a House Financial Services subcommittee hearing is scheduled, is the date to watch, he says. The chief accountant of the SEC is being asked to testify.
Under mark-to-market rules, banks must give current market prices to the values of their assets. That has caused banks to report billions of dollars of losses as values of mortgage securities have sunk.
Banks argue that the rule forces them report paper losses based on current prices even if they plan to hold the assets for the long term.
Those mark-downs, which don’t show the potential for higher prices in the future, have destroyed the market’s confidence.
The SEC, although proposing some updates, has recommended keeping the rule.
A bill proposed by Rep. Ed Perlmutter (D-Colo.) calls for regulators outside the SEC to study the rule and its overall impact.
“Mark-to-market rules have clearly exacerbated the financial crisis as institutions have been forced to report market losses rather than economic losses, resulting in a continuous downward spiral of market prices and further losses,” says Edward L. Yingling, president of the American Bankers Association.
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