Handing out goodies

We’re seeing some typical Washington horse-trading as lawmakers try to add enough goodies to the bailout bill to help it pass the House.

Some of these changes make sense. The Congress dropped the ball by not extending tax credits for clean energy – now these credits have been added to the bailout bill. Deposit insurance will be increased from $100,000 to $250,000, and fixes to the Alternative Minimum Tax have also been added.

Of course, this stuff will bust the budget by another $100 billion, but who’s counting at this point.

Yesterday, the SEC clarified the mark-to-market accounting rules that many have blamed for exacerbating the current crisis. It’s possible that this change will be codified in the bailout bill.

There are strong arguments on both sides of this issue. Many like Steve Forbes have argued for years that the mark-to-market rules create short-term problems as banks are forced to write down assets to fire sale levels when problems arise. This has the effect of throwing gasoline on a fire when economic problems arise. On the other hand, some write-downs are needed. Otherwise, banks can sit on depressed assets and it can take years to flush the system of bad debt. This is what happened in Japan.

It’s a complicated issue, but it appears that the latest SEC changes offer a compromise that will ease the pressure on banks while still requiring them to assess the bad debt on their books.

  

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