From Bloomberg today comes a report that some key hedge funds are suggesting that far from being over, recent market gains represent a temporary uptick in what remains a bear market and lingering recession. Key for these influential players is the remaining problems with bank balance sheets resulting from changes to fair value accounting rules earlier this year.As the report notes
It seems that the downturn and underlying factors driving it are not so much resolved as forgotten. The news cycle has moved on but the problem remains.The Financial Accounting Standards Board voted in April to relax fair-value accounting rules. The change to mark-to-market accounting allowed companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities that plunged with the housing market.
Banks are reporting better earnings because they haven’t been forced to account for their losses yet . . .
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