The SEC is a weak sister, but yesterday it again joined the stupidity parade.

Congress wants the SEC completely to suspend mark-to-market accounting. The SEC refused. Nevertheless, it gave Congress what it wanted by clarifying the existing mark-to-market policies.

“In one clarification, the SEC said firms can use management assumptions and other factors about ‘future cash flows’ to measure the value of asset if no market exists.

“In another example, the SEC said firms don’t have to take into account an asset fire-sale at another institution to measure the fair value of their own exposures.”

Add it up. It says to banks. Use your own discretion to make up a value for these assets that have no market, and you do not have to pay any attention to the market value realized at a sister bank. Whatever prices they got are denigrated by the adjective “fire-sale.” They don’t count.

Investors now have even less transparency than before. They have less reason to buy and hold bank stocks. This is a negative for bank stock prices. All banks being under the same loose rules, there is no way for the good banks to separate themselves from the bad banks. This worsens the ability of investors to price the bank stocks properly. They will all be viewed as lemons unless good banks devise some ways to signal their better quality, and that will cost them so that the bad banks cannot imitate them.

In short, the SEC is creating a lemons problem and undermining the market.