http://www.financialsense.com/fsu/editorials/andros/2008/0404.html

Now comes the latest twist: “The return of marking to model” which was ended last November. Tedbits wrote about it at the time and it has bitten the banks and financial industry’s balance sheets HARD. So the SEC, bowing to pressure from their masters: Congress, The Fed, The Treasury, the Plunge Protection Team and the banking and brokerage industries, has revised the regulatory guidelines for applying SFAS rule number 157. This rule required marking to market when there are observable prices of hard-to-price and almost impossible-to-sell over the counter securities (CDO’s, CMO’s, MBS, etc). Here is a chart that illustrates the problem:

This is a picture of financial industry and banks’ balance sheets VAPORIZING before our very eyes. So what do the financial and banking authorities do? What else? Rewrite the regulatory guidance in respect to how to value them for REGULATORY reporting purposes. The SEC has issued an opinion letter informing financial and banking companies of how to deal with these thorny balance sheet and accounting compliance issues by telling them if they have a problem with the mark to market valuations then declare the prices as the result of forced liquidation and ignore them. And how did they sidestep the horrendous losses due to be reported in the next three weeks from the 1st quarter? By backdating the interpretative notice back to January 1. Abracadabra: poof and money reappears on the balance sheets, hocus pocus of the highest order. That rule saw the light of day for a total of 45 days!!! Now it’s history.