Manifestor

Accounting Rule Changes Creating False Rally in Financials

It is the unintended consequences of M2M that hurt the market. The second order effect that caused an adverse feedback loop (in a down market) made the market go awry. The suspension of the uptick rule that came into effect at the same time just added salt to the injury. The problem happened so quickly that it did not give any time for the banks to deal with the downward spiral in asset price markdown.

Having said that, if market is poised to move up, the second order effect of the M2M can provide a positive feedback loop this time:-) Perhaps they should leave it alone or fake tuning it to give market the kick.