"SEC loosens requirements for banks to report investment values"

As that towering intellect, Federal Reserve Chairman Ben Bernanke 'and others' point out "... totally removing the rule would erode confidence that firms are owning up to losses."

So, er, partially removing the rule only partially erodes confidence, so that's a good thing, huh? Or not as bad? Or what?

EU Referendum reported today "Many experts, Congdon included, are attributing ... the failure of Northern Rock, Lehmans [to the requirement that banks report investments at their market value] and, most recently, Bradford and Bingley, all of which were solvent by traditional accounting rules and need not have gone down."

I opined on this back in April (to which EU Referendum kindly linked after I pointed out that the debate had been rumbling for some time) and see no reason to change my mind. If it is true that nobody trusts banks any more (why should they, the banks don't even trust each other) where is the logic in allowing banks to prepare financial statements using fantasy figures?

Hysteria aside, there is a significant underlying value to sub-prime mortgage assets - even in a worst-case scenario, the write offs are measurable and quantifiable and some value is recoverable, even if only in the medium term. The perceived problem is that there is no proper market value.

So here's my compromise suggestion; banks can report these investments ('toxic assets') on their balance sheet at original cost or valuation (with full details of valuation method etc), but they'd have to disclose, in the notes to the accounts or on their website or wherever, the full gory details of what those underlying investments are, who the counter party is, how they are secured and so on.

That way everybody can make up their own minds. It would take a specialist days to follow all the trail all the way from the ultimate holder back to the proverbial 'unemployed man in a string vest' but it could be done (the history of accounting shows that disclosure always came before valuation anyway).

Armed with all this extra information, The Markets would be able to work out with their usual unerring accuracy what the banks' net asset positions really are, and with time confidence would return. The alternative is that full disclosure would lead to a complete meltdown in confidence and the most terrifying run on banks that has ever been seen*. Is that why they are being so coy? Who knows?

* Per Doc Emmett Brown in "Back To The Future II"; "Granted, that's a worst-case scenario..."