Quit whining about accounting!

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NEW YORK (CNNMoney.com) -- There are many reasons why banks are stuck in the mess they currently find themselves. But you know what? Accounting rules aren't one of them.

A congressional panel held a hearing Thursday about the debate over mark-to-market accounting rules, which require that companies record the current market value of an asset -- even if that asset is essentially worthless -- in their financial statements.

Some critics of the rule have called for major changes to it, or even a temporary moratorium on it. But that may be an overreaction.

Sure, mark to market may be prolonging the problems for big banks such as Citigroup and Bank of America (BAC, Fortune 500), because as long as these companies are stuck with soured mortgage-related assets on their books, they will need to keep taking huge writedowns that cause them to report massive losses.

"The problem with the mark-to-market rule is that it requires you to value assets under the presumption that you are going to liquidate everything today in a fire sale. Most financial institutions are not liquidating," said Richard Ebeling, senior research fellow for the American Institute for Economic Research and a professor of economics at Trinity College in Hartford.

He has a good point. But changing the rules to make these assets look more attractive than they currently are - because they might one day be worth something again if you click your heels three times and chant "There's no place like a foreclosed home" over and over - is not the solution to the banking crisis.

"Those who oppose mark-to-market rules say it exacerbates the downside because it is giving a false signal about the economic value of securities. But the truth is that's not the case," said Patrick Finnegan, director of the financial reporting policy group for the CFA Institute, a nonprofit organization that administers the Chartered Financial Analyst exam for investment professionals.

Finnegan argues that current market values are the only way to reflect assets on a bank's balance sheet, since anything else would be mere guesswork.

"If the market is assigning low values to securities, that's the economic reality of the day. Putting a value that is not the current one is misleading to any investor in a financial institution," said Finnegan. "If you begin to use assumptions that management thinks are more representative or desirable, then you are going down a very dangerous path."

Ebeling disagrees. He thinks that given how illiquid the markets are for toxic securities, the current lowball valuations are also nothing more than shots in the dark.

"Mark-to-market attempts to give certitude and exactness when we are dealing with a highly speculative environment," he said.

I understand his argument. But I tend to agree more with Finnegan. Perception is reality. And right now, the market believes that many banks are facing severe capital crunches because of bad assets. It's true that the values for these assets could, and should, eventually head higher.

However, if we don't use current values, what's the alternative? The undoubtedly rosy projections about future cash flows from bank executives, most of whom have done nothing to earn trust from investors?

"Companies are fighting for their survival and they want to use accounting to obfuscate their true financial position. Who's to say their view is more sound or fundamentally reliable than what the market thinks?" said Finnegan.

The call for changing accounting standards, much like the blame game that's being played with short sellers, shifts the focus from the real problem. Banks aren't struggling because the rules are stacked against them; banks are struggling because they made bad decisions throughout the bubble years.

A moratorium on mark-to-market accounting would only reward bankers for their reckless behavior of the past.

What's more, it only would serve to delay what obviously must be done: banks need to get rid of the assets soon -- whatever the short-term cost -- instead of sitting on them indefinitely.

If a baseball team is down 10-0 after nine innings, would anyone think it's a good idea to extend the game for nine more innings on the off chance that the loser might catch up - because the manager of the trailing team says his squad should eventually score 11 runs at some unknown point in the future?

"Eliminating mark to market is triage. It would just postpone the inevitable reckoning with this issue," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, an investment research firm. "Ultimately, you have to deal with the fact that there was a huge degree of leverage in the banking system and now there is true uncertainty about what many of the banks' assets are worth."

Shameless plug alert: Before I started writing The Buzz, I covered the media business for several years at CNNMoney.com. Some of this reporting is the basis of a book I've written about News Corp. CEO Rupert Murdoch called Inside Rupert's Brain, which will be published on March 19 by Portfolio, an imprint of Penguin Group (USA).