What we have we prize not to the worth
Whiles we enjoy it, but being lacked and lost,
Why, then we rack the value, then we find
The virtue that possession would not show us
Whiles it was ours.
William Shakespeare (1564–1616), British dramatist, poet. Friar Francis, in Much Ado About Nothing, act 4, sc. 1, l. 218-22. We do not value at its true worth what we possess, but when we lose a possession, we exaggerate (”rack”) its value; he is thinking of Claudio’s harsh treatment of Hero.
…The TARP accounting debate centers around a choice among two treatments: (1) purchases/offers by the government are not relevant for valuation of unsold loans; or (2) it is appropriate to use the pricing information from government purchases to measure the fair value of unsold loans.
It seems that the debate exists because a reading of SFAS 157 indicates that both alternatives are within the rules; paragraph 11 of SFAS 157 states as follows:
“The fair value of the asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. In developing those assumptions, the reporting entity need not [but presumably may] identify specific market participants.” (my additional language is in brackets)
It’s refreshing if the firms are reviewing and vetting sophisticated tools, the same ones their clients are using (?) to be better at this…
“If you want to then make that transition, you have to put in place a framework for actions that a preparer [company] or auditor can take – a layer of guidance that would sit on top of a set of principles-based standards.
“You could then start to build a base for defence if someone challenges your judgement,” he said.
Ernst & Young
January 28, 2008