Posted on 03/13/2009 8:15:29 AM PDT by ChessExpert
An effective and simple way to reduce the effect on the economy of the collapse of the collateralized debt obligation market would be to suspend mark-to-market accounting in determining the regulatory capital of financial institutions.
...
Today the collapse in bank capital has led to a severe contraction of lending, in good part because mark-to-market accounting forced banks to write down and reclassify assets that are required reserves. This destabilized credit and increased the demand for capital by financial institutions in an uncertain environment. A 2008 study by economists at the New York Federal Reserve Bank found what may now seem obvious, “that mark-to-market leverage is strongly pro-cyclical.”
...
More than 80 years ago, Ludwig von Mises pointed out that government intervention leads to unintended consequences that lead to additional government intervention. Mark-to-market accounting requirements for regulated capital have created an unintended consequence that has led to worsening the financial crisis rather than stabilizing it.
(Excerpt) Read more at humanevents.com ...
Government intervention leads to unintended consequences that lead to additional government intervention.That quot needs to be carved into every congress and senate critters forehead.
God forbid these huckersters should actually report the value of these deadbeat loans at what they are worth.
However, I do believe that there is some room that could relieve some pressure on some banks. If we alter the rules for specific types of loans (the majority) we could ease the credit markets a bit:
To qualify a loan would need to be:
- for 10 year or longer,
- first mortgages,
- fixed term loans
- in current good standing
- the customer has not been more than 60 days late.
I would like to see for those qualifying contracts, the use of “contract value” as the measure of the worth.
ARMs, seconds, and other loan gimmicks would not qualify.
I can't think of a single good thing that came out of SOX. Well, maybe one, they so killed the financial market in the US that the world financial center moved from NY to London so they're taking a bigger hit.
But oh, SOX was going to prevent anything bad happening ever again....Just love how the government fixes things.
I can’t think of a single good thing that came out of SOX either. I wonder when we still stop paying for Enron, WorldCom and Coastal?
So far about 4 Trillion in costs that were not part of the original companies.
But besides the direct cost it's the stupidity of government dictated business practices.
Like the goobermint keeps honest and pristine balance sheets and do everything efficiently....
It'll never be over....
Also from the article:
This is not the first time even in recent history that a credit crisis has occurred. As one example, in the spring of 1994 the Federal Reserve, after a long period of low short term rates, raised them unexpectedly. This led to the failure of Granite Capital and institutional investors suffered losses. Complex collateralized debt obligations sold at steep discounts to their fair value. This however, did not lead to a collapse of the capital of financial institutions in general. Had mark-to-market accounting been required by the financial regulators, this collapse in the CDO market could have spread throughout the entire banking industry
It is to you.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.