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Mark to Market makes no sense for real estate holdings.

Mark to Market doesn’t value the assets on todays value - it values them on todays LIQUIDATION value which is essentially the foreclosure price.

It’s irrational and it is forcing banks to horde money to avoid being illiquid and having the short sellers start another feeding frenzy.

Mark To Market needs to be decoupled from real estate assets. It’s current interpretation is killing real estate and preventing recoveries in markets which could be going up right now if not for stupid lending policies.

So you would prefer fairy land value in accounting??

Why does getting rid of Mark to Market accounting have to necessarily imply fairy tale value accounting ?

Before I proceed , I want to set the record straight. I believe financial statements should present a conservative, consistent and realistic report of results of operations, financial condition, cash flow and contingent liabilities and assets. Bad assets and poor management decisions should not be hidden behind accounting manipulations. Loan loss and other reserves should be conservatively determined and uncollectable assets should be promptly written off.

Accounting rules shouldn’t drive business decisions, they should reflect them.

However, mark to market rules distort financial results and business decisions under the false cloak of conservatism. The rules make little sense, produce inconsistent results, lack a basis in reality and provide lots of room for abuse. They should be suspended immediately before more damage is done. And, the damage is a distortion of common sense business decisions and financial reporting.

Mark to market rules are one of the worst manifestations of the “trader” mentality that spread from Wall Street to the rest of the country. Wall Street traders with severe attention deficit must have drafted these accounting rules because they push valuations and reporting of business decisions into the “moment” (which is worse than the short term) and use the equivalent of “financial sound bites” to determine value. The false premise that the price for which an asset can be sold for at this minute is the true value of the asset underpins mark to market accounting. One of the basic claims of the Paulson Plan, that only the government has the patient capital necessary to own financial assets and wait until they pay off at maturity, is the ultimate indictment of the crazy results of these accounting rules.

Mark to market accounting assumes that what people are willing to pay for an asset is always the same as the asset’s value. This assumption is wrong. When assets are tradable, transparent and liquid, what people are willing to pay is the “real” value. But, when assets aren’t traded and are illiquid and opaque (like a private bonds or loans), market prices are a worthless measure of value because there is no market to establish value. Not all assets that have no trading market are bad assets; most of them are just private loans to individuals and businesses. Before mark to market accounting, loan loss and valuation reserves were established for uncollectable obligations and assets.