Steve Forbes' Monday (3/17/08) morning interview on CNBC deserves comment because he recommended ignoring market valuations and urged federal intervention in currency markets that would cost U.S. taxpayers a lot of money.

Forbes recommended suspending the SEC's "mark to market" valuation rules for U.S. financial firms because many products, mortgage-backed securities in particular, are not trading now, or are trading a unusually low valuations. The rules allow the use of computer model valuations when there are no market prices, which Forbes also dismissed. This is unusual behavior for a staunch adherent of the "free market."

Note that Forbes did not object to those valuations when they were sky-high a year ago. When the dot.com bubble burst eight years ago, he didn't argue that accounting standards for tech firms should be relaxed to let them ride out the storm. Why would he argue so now?

He implied that when banks and the financial industry are at risk, they are the lifeblood of the economy and deserve special treatment, no matter how recklessly they behaved with our money. That sounds like the arguments made in the 1980s about saving Savings & Loans to protect homeowners. That one ended up costing the taxpayers $124 b.

It is true that financial institutions play a special role and that the government needs to step in if their demise threatens to take a lot of innocent businesses and individuals with them. That's why the Fed has moved so aggressively to cut interest rates and to offer loans in return for collateral that no one else will buy right now.

It is also true that the markets are undervaluing most financial assets backed by mortgages at the moment. However, the solution is not to suspend valuations or to go back to their initial purchase prices. At best, that just postpones the problem, and at worst, it further clouds what assets are worth.

This financial crisis will end only when the markets regain faith in current valuations of housing assets. That takes willing buyers and willing sellers to set the prices. When no buyers show up, it's because they expect housing prices to fall further. When they become convinced that housing prices have bottomed, buyers will cautiously reenter the market. They're not going to be fooled by a change in accounting practices.

As for currency intervention, all you have to know is that more dollars are held by foreigners than by Americans. If they decide that we've bought so much oil and other imports that we may not pay, they're going to be less willing to hold those dollars. Any taxpayer money we spend on trying to "stablize" the dollar will simply be swallowed up in a futile attempt to turn back the tide.

By the way, currency intervention is nothing more than a government's attempt to overcome market forces. I thought we believed in markets. Don't we, Steve?