Exactly the opposite.
"Fair value" does not mean "true value" - there is no such thing as "true value."
The value of an asset is what someone is willing to pay for it.
"Fair value" is an estimate by accountants as to what the price of an asset should be.
"Mark-to-market" is pricing an asset according to what someone has actually paid for it in the market.
"Fair value" accounting inflates asset prices. Marking them to market doesn't.
Mark to Market is Fair Value — as oppossed to Historical, Purchase Price or depreciated value.
It is what was abused by Enron to claim a certain Market Value for contracts and use that to write up a big bankroll of that imaginary exchange market of theirs.
It just means that you will mark an item at market price when you list it as an asset or against where it is pledged.
There is some valid uses but the abuses are easy to see. I buy an old car for 1,900 but using Mark-to-Market call it an antique worth 50,000 and then pledge it as collateral to buy 26 more old cars...etc., etc.
Most assets in accounting are carried at the price it was bought at, or in this case lended at. You are correct, it makes their balance sheets look better when the mortgages are carried at the old higher values, not the post-crash value.
The mark-to-market is just that - current appraised value would be my guess. That is sometimes used to force writeoffs and get the bad assets off the books.
Mark to market is a tricky issue. While you might thing writing down an asset to its current value is good, the problem with the mortgage mess was there was no market so the “current value” of the toxic loans was $0.00. That effectively bankrupted wall street. Realistically the toxic debt had some value, the question is how do you price it in a financial melt down.
As for FASB, I bet it was the push to get rid of mark to market, not sure though.
It meant that if FASB didnt do what Dodd and the dems said, they would outlaw them as a standards board. Therefore FASB suspended rule 157 for 1 yr in 2009. When the new president of FASB, Seidman, indicated that she was going to reinstitute 157, they (bankster/government mafia) threatened her as before. That is what they meant by 'politicalicizing.' She resigned. Her replacement kept 157 (mark-to-market) indefinately.
as long as the zombie banks keep sucking the free money printed by their slave, Federal Reserve, we will continue in this morass because they have bought the government, both parties. that is why both sides hate the Tea Party.
Mark to market in the banking world was not used on their mortgages. If a bank held a mortgage on its books it was not a tradable public asset, therefore it had no ‘market value’ that fluctuated. Mortgages were valued on the books based on their loan status. If the mortgage was being paid the value was based on the loan value. If the mortgage was in default it was classified as non-performing and a charge was taken.
Mark to market in the banks was most likely used for their securities held, whether mortgage pools or collateral held or something similar. This was more likely what the rule suspension was directed at.
The suspension came about because it would have been ridiculous to allow short term fluctuations in market values of these securities to cause a technical bankruptcy of a financial institution when the securities were likely to rebound in price once the ‘panic’ period subsided. And this is what did happen.
Although the suspension is still inplace it is not likely an issue right now. A mark to market of those holdings likely is pretty accurate right now.
This is not the black and white issue many think it is.
Say I own a security - a bundle of mortgages that I bought for $10 million.
Half of them have a 90% chance of defaulting. And no one on planet earth wants to buy the bundle, unless they pay about 40% of the $10 million. So if I truly consider what I could actually expect to sell my “bundle” security for today - I’m looking at realistically being paid $4 million for it.
FAS Statement 157 is aimed at having me write down (expense a loss) $6 million of that asset, so it sits on my books as an asset worth $4 million. The realistic price. Otherwise, some banks are big, like BofA - it has a $2 trillion balance sheet, with hundreds of billions in loans and leases. If it did not value it’s assets realistically, it would be risking having a shock down the road when they mature and are not fully paid to them. So they try to be realistic, that’s why their stock price has fallen so much (85%) because the street is wondering just how solid their assets are.
Trouble is, for whatever administration is in the WH, the bankers of the world are hating the idea for the past few years of having to take too many write downs too fast if these assets are declining in value very quickly: they’d run huge current period losses. So, by hook or by crook, they try to write down things over several years or quarters. It reduces their profit in the current period, but it avoids having to take huge losses when the assets mature and wham ! The thing they paid $10 million for sells for $4 million.
Mind you, the government was the originator of the whole mess by forcing the bad loans, but the banks went along with it. So it’s just an ugly process that just has to be allowed to work, no matter how ugly. Not to mention, there’s political pressure both ways at different times (depending on which way the political wind is blowing) to be stricter with the banks or to ease off on them.
Some time in the ninety's Congress allowed the banks to change their assets based on the market value of the property rather than the lien or loan value. It seemed smart at the time. Housing prices were going up at around 20 percent per year. This way the bank's reserves increased and they could loan more money. Banks even let some people buy homes with no down payment or at 100 percent of the value of the home. Everyone expected home prices to keep on going up. They had gone up for thirty years.
This went along fine until the unthinkable happened. California, Nevada, and Florida had a housing slump. The houses dropped in value and the bank's reserves dropped and they could no longer loan any money. The banks then started calling in bad loans and the people let the houses go into foreclosure because they no equity in the house.
So to protect the financial process from rolling over and dying, the government stepped in and took your tax money to prop up the banks. It was called the Toxic Assets Relief Program(TARP).
Stocks have always been marked to market..
Bonds...especially governments..were, way back when..bought, and held to maturity...they provided a high level of safety, a constant, and consistent, income stream.
So if a temporary economic jolt hit, and bond prices dropped, they didn't want to make banks and other financial institututions have to write them down and take hits to the balance sheet.
Mortgages behave almost exactly like bonds in that regard..but now that they are securitized, and cut into tranches, and traded constantly...they should be marked to market...but this can disrupt the liquidity of the market, and the ability to generate and absorb NEW mortgages..so the POLITICAL decision was made to allow leeway in the FASB standards..