The blade is sharpened

And time is fast running out:

The war over mark-to-market accounting is about to get hot, again. In coming weeks, the Financial Accounting Standards Board is likely to propose that banks expand their use of market values for financial assets such as loans, according to people familiar with the matter. That departs from current practices in which banks hold loans at their original cost and create a reserve based on their own view of potential losses.

This has to be done, but the banks are going to fight it with everything they’ve got. The reason is because, by my estimate, the values of those loans, as well as the securities and derivatives based on those loans, are around 41% overvalued. That means that marking to market rather than marking to fantasy will eradicate about $15.6 trillion from the credit markets.

Even in an economy with a $14 trillion GDP, this is likely to have an impact.

Congress, led by Barney Frank, forced the FASB to permit what has been little more than legalized accounting fraud in order to keep the banks out of bankruptcy. But because the so-called financial rescue plan has failed, the important question now is whether the politicians are determined to go down fighting alongside the banks or whether they will finally break ranks and try to save themselves by sacrificing the banksters to the vengeance of an angry public.