by Kathleen Brooks

Today the Financial Accounting Standards Board voted to let banks and other companies change the way they value assets. The idea is to give them a break from mark-to-market accounting, which requires them to price the assets at whatever they could sell them for now.

Lately, those prices haven't been so high. But what about when times are terrific, and the market value of assets is implausibly great?

 

"As it stands, the new accounting rules only work when the market is inactive, like we are witnessing at the moment," says Joshua Ronen, an accounting professor at New York University. "When a market is irrationally exuberant the market is seen as active, so this would not apply."

This means that banks can reap the benefits of high prices in a hot market, and limit their losses when the market dries up. Ronen calls this double standard the "idiocy of this guidance."