Posted on 02/05/2009 10:50:41 AM PST by NormsRevenge
WASHINGTON (Reuters) It might be possible to modify mark-to-market accounting rules for U.S. banks facing steep writedowns of troubled assets without abandoning the underlying accounting standard, a senior Senate Democrat said.
Sen. Christopher Dodd, the Democratic chairman of the Senate Banking Committee, told reporters on Wednesday evening after a panel hearing that at least one former bank regulator was discussing how to approach the difficult issue without "walking away from" mark-to-market standards.
The issue of how to value distressed assets held by U.S. banks has been one of the most difficult challenges in constructing a bank rescue plan, according to industry lobbyists and lawmakers.
It the government buys some bad assets as part of the rescue, it could force banks to drastically write down billions of similar assets. That could create further instability unless changes are made to the accounting rule which requires assets to be valued at market prices.
The Securities and Exchange Commission has already given the financial industry some wiggle room and has said hard-to-value assets do not have to be marked down to fire-sale prices.
(Excerpt) Read more at news.yahoo.com ...
This is EXACTLY what Dave Ramsey suggested last summer before the meltdown.
Amazing.
Most people do not understand how the mark-to-market accounting rule really caused the meltdown. Even though these investments will cashflow and most of them will pay back all of the principle at a minimum, they are being valued at extremely low prices since no one is willing to buy them on the open market.
This market value change is run immediately through net income and equity causing financial institutions to fail capital ratios, even if they are still earning money.
Then it wouldn’t COST real dollars!
Nudge, nudge... Wink, wink...
This is starting to look like a pattern in Chris Dodd's behavior. Isn't that exactly how he got the sweetheart mortgage deal?
As long as you have an acounting system built on smoke and mirrors, there will never be a recovery - only temporary respites so that the same old crooks can get reelected.
If you are a company and you get audited, they WILL take a hard look at your assets. Those that don’t meet the grade - value, lives, method, etc. - do get revalued and you take the hit. Same here with these troubled assets. Write them down, take the hit and move on. Sooner or later, you MUST do it.
Well I understand how mark to market works and it only accelerated the meltdown, it sure as heck didn’t cause it.
The reason that there is no market for, say, junior liens on housing units (i.e., the 20 part of the infamous Countrywide 80/20 loans) is because that 20% part, along with a big chunk of the 80% is GONE, EVAPORATED, KUPUT. It will not come back for DECADES.
The only reason to allow banks to value paper at fantasy prices is the thought that this is a temporary dip and prices will recover. PRICE TO INCOME RATIO ANYONE??? The prices need to make this paper perform again are insane and they aint coming back.
It is better to identify and rid our system of the weak banks as early as possible, when losses are more manageable, rather than allow them to go Ponzi and keep making these horrible loans...and then throw the government even more debt.
Bottom line - mark to market is working fine...well not really, as banks are still getting away with some serious fudging...think about it, up until a few months ago they all reported profits (even the ones that got bailed out). Did the collapse just start then...I doubt it (and they know it).
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