SRS took a pretty good dive into the close on Friday, leaving more than a few people puzzled. The catalyst for that move appears to have been the release by the Fed of this policy statementwith regard to accounting standards on CRE loans. This new policy was greeted initially by the market with a positive reaction. But, given that the first move is often the wrong move, will it continue?

ZeroHedge posted an article on this new policy late Friday, here. Basically, this new policy seems to be saying that a) the Fed may not backstop CRE as it has with the housing RE market and lenders, leaving smaller and regional banks to "deal with it"; but b), will look the other way (don't ask, don't tell) with respect to what would otherwise be near fraudulent accounting practices and allow them to "extend and pretend" with respect to their bad CRE loans. Will this be enough, or will it merely postpone the inevitable?

One excerpt from the policy statement, among several, is telling:

"A new appraisal may not be necessary in instances where an internal evaluation by the institution appropriately updates the original appraisal assumptions to reflect current market conditions and provides an estimate of the collateral’s fair value for impairment analysis."

Internal appraisals? Hold on a moment, let me think.....what was one of the big reasons we got into this problem in the first place? OH! Internal appraisers and appraisals!!! The problem is the solution! Ban internal appraisers for residential RE because it led to the problem, but encourage the practice in CRE to fix the problem.

Another way to look at this is to ask, what other options are there? We are clearly headed toward the abyss with respect to CRE. When Wilbur Ross and George Soros among other household investment names all make headlines with respect to CRE (like we needed them to tell us), and they are not positive headlines, you know there is a problem.

Another Trillion dollar bailout? I really doubt that will fly right now for lots of reasons. Ignore the problem and tell private industry to figure it out and fix it themselves based on the rules that they knew existed when they got into this mess? Well, that would likely lead to a major upheaval in CRE, loss of many jobs, extend the recession, and make government appear weak and uncaring, not to mention favoring the "too big to fail" (ie, the largest campaign donors and those with the most lobbyists) as they pay themselves obscene bonuses with taxpayer money. Or, tell private industry to deal with it but here is a little orange juice to go with that shot of vodka. I have no idea what the answer is, but do know that it is awfully easy to say what the answer isn't.