Bankers Say Rules Are the Problem

The New York Times blog ^ | Friday, March 13, 2009 | Floyd Norris

[CRBDeuce]

provided by NYT

If mark-to-market accounting is to blame for the current financial crisis, then the National Weather Service is to blame for Hurricane Katrina; if it hadn't told us the hurricane hit New Orleans, the city would never have flooded.

This is the logic the bankers are using, and they are getting sympathetic ears in Congress. The bankers have gotten two members of Congress to introduce a bill to establish a new body that could suspend accounting rules for financial institutions.

Edward L. Yingling, the president of the American Bankers Association, says the proposal addresses "systemic risks that accounting standards can have on the economy."

[CRBDeuce]

There is so much misinformation available on the topic of what caused the Financial Meltdown, here's one from the poster child for misinformation the NYT. That bankers say that mark-to-market caused the problem shows that the bankers are literate. What always fails to get out in the message is that it caused both the bubble AND the meltdown. Mark-to-market ACCELERATES both up moves and down moves. In the 70's and 80's the term mark-to-market hardly existed in Financial Accounting. Textbooks didn't mention it at all (for example Financial Accounting Concepts, 2nd ed. by Russell-Frasure, 1974).

[ml/nj]

If mark-to-market accounting is to blame for the current financial crisis, then the National Weather Service is to blame for Hurricane Katrina

A voice of reason appears.

ML/NJ

[Ev Reeman]

Whar got the banks into trouble in the first place was caving in to liberal philosophy.

Banks should always put their best interests above politcis. First and foremost is to follow the rules of sound banking and lending policies and not giving every yahoo that comes along a loan without it being securitized properly. And second to always make sure they are well capitalized and not overleveraged.

[Lockbox]

My thoughts are that as assets recover in value, bank stocks will increase in value. The asset valuations have been hit hard due to a limited market, once this turns around then the market valuation's will increase pulling up the banks’ stock prices.

[Mad Dawg]

Actually I disagree. M2m’s flaw is that it MAY encourage ever-emphasizing the current value of an asset. That certainly has SOME meaning. For example it influences one’s ability to borrow. But the value of lambs in the spring is not the value of lambs in the fall, and sometimes one nurtures one’s assets in anticipation of a future rise in value.

[Cowboy Bob]

Money corrupts. Government money corrupts absolutely!

[LomanBill]

“Do what thou wilt shall be the whole of the Law”
—Aleister Crowley, founder of modern Satanism, circa 1908

“Rules? We don’t need no stinking rules”
—Bankers, circa 2009

[CRBDeuce]

DemocRats blew up the windmill with an Acorn

Priceless

[Moonman62]

Mark-to-market ACCELERATES both up moves and down moves.

I can agree with that, but I don't think it is the root cause of the problem.

[ml/nj]

M2M makes complete sense. You value an asset at what it's worth, not what you paid for it or wish it were worth; and even if you don't the people who might consider your value certainly should.

The notion that you buy a $1 mil note, and it's value stays at $1 mil is absurd. When the market comes along and values that note at $800 thou, and someone else decides to buy it for $800 thou, what should he value it at? Should he really value it $200 thou LESS than the fool who paid 25% more than he did? You both are holding the same thing.

I wish people like you were around to purchase my Belmont tickets on Big Brown. (And don't tell me, "Oh that's different.)

ML/NJ

[patton]

M2M is like saying that you state your net worth on the value of your 401(k) today, if you cashed it out before noon and paid the tax penalty.

[Tempest]

There is no mark-to-market “problem” the bankers just want a new scam legalized so they can dump their garbage for top dollar.

[patton]

I do disagree - why should my bank value a perfectly performing 30-yr mortgage at less than face value?

If they were to sell it TODAY, sure, they might get less - but if they are in for the long term, it is certainly worth more than face value.

[Mad Dawg]

Please. I think you're overstating my position and then attacking the overstatement.

Not all assets die like a racing ticket stub dies. Even a stub on Big Brown (wow, was that last race ever a bust!) might increase in value somedoy if some lunatic collector wanted it enough.

Current market value is AN indicator, but not the only nor a totally adequate indicator of an asset's value. That's what I'm trying to say.

What say you to CRB Deuce's argument that M2m can inflate the value of a corporation's assets?

[Mad Dawg]

That seems right to me. And if I need the cash, it’s the metric to use. But if I don’t, it ain’t.

[CRBDeuce]

The 'garbage' is the 'crammed down' mortgage contracts that Congress so 'generously' cut in half! What part of the word 'contract' does an act of congress improve on that allows renigging on a dime!

[CRBDeuce]

Actually I totally agree that it is definitly not the ROOT cause at all....that would have been the CRA Cxxxx Relief Act passed by Kongress and signed by Carter circa ~ 1976.

[ChessExpert]

If mark-to-market accounting is to blame for the current financial crisis, then the National Weather Service is to blame for Hurricane Katrina

“A voice of reason appears.”

From the New York Times? I don’t think so.

[Vet_6780]

I have no sympathy. My account is marked to market every night.

If bankers had followed simple rules like Glass Steagall and used moderate leverage they wouldn't have led the world into a meltdown.

[CRBDeuce]

You’ve hit the core of the problem right between the eyes! Mark-to-Market as it’s being applied finds the ‘best deal in the country’ fire sale, and all the sudden that’s the ‘Market’!!! ie, it’s a ‘liquidation’ price, not an ‘ongoing concern’ price. Look, the Bean Counters found out how to accelerate the market into a BUBBLE, then accelerate the market into a CRASH. Pirate Speculators made trillions of dollars exploiting it. No reason at all to keep it around so they can do it again! Now that the History is in print, a lesson needs be learned. Some have learned it and profited, some will refuse to learn it!