Posted on 04/02/2009 9:40:30 AM PDT by TeleStraightShooter
I'm with Steve Forbes on this issue, its about damn time they at least try to fix that Charlie Foxtrot they created!
I agree...’bout time.
Awesome. Banks get to cook their books even more. Great news.
Screw the ‘market’ value.
Oh, well... back to the Photoshopped economy.
Sigh.
Goodness, had mark to market not been instituted, we would not be in this confusing mess. But, then again, Barney, Chris and their buds would still be looting that piggy bank.
Sadly, they have just moved to the trough of the Treasury.
At most the banks should be allowed to make estimates based on current cash flow which they can report in addition to the official mark-to-market valuation. Then investors could decide which they believe.
Blaming mark-to-market for the banks' problems during the real estate collapse is like blaming the x-ray for your arthritis.
Next thing they should do (but wont) is cancel that stock option crapola.
Options in scores of companies are now worthless yet the companies P&L and balance sheets were diminished by the “real” value of paper.
Thank you Warren Buffett.
Before Mark to Market FAS 157:
A 30 year mortgage could be valued at what it could be sold for at when it's value is at it's highest over the next 30 years. By low sell high. It's real estate, it's not going anwhere.
After Mark to Market FAS 157:
A 30 year mortgage was valued at what it could be for TODAY if it had to be in a flooded market under a margin call. Buy high, forced to sell low.
The head of the House Financial Services subcommittee, Rep. Paul Kanjorski, D-Pa., had held out the threat of legislation to pressure the standard-setting board to take the steps.
Did Barney & the (D)s 110th Congress brow beat the FASB into FAS 157 in the first place?
Screw the ‘market’ value.
Actually, this is a step in the right direction.
Before Sarbanes-Oxley -- an ill-considered over-reaction to the Enron scandal -- companies which were unexpectedly caught with a clutch of over-valued assets, but were otherwise profitable, were allowed to write-down the loss over time.
Often, the assets would recover some value -- as is the case with much of the current "toxic assets" --thereby reducing the loss. Otherwise, the companies were able to continue operating -- charging the loss against annual profits on a pre-approved audit schedule.
With Sarbanes-Oxley, however, the rules require that such assets by "marked to market" immediately. Which, in this case, was zero. As a consequence, many financial firms saw their net worth evaporate and found themselves not in compliance with their loan covenants -- leading to immediate and uncontrolled bankruptcy.
In the absence of Sarbanes-Oxley, many of these firms would still be in business and the "credit default swap panic of 2008" would not have been nearly so deep nor so long.
So, the government is not only responsible for initiating the financial mess (Fannie Mae and Freddie Mac), it was responsible for intensifying it (via Sarbanes-Oxley).
The bankers might share some of the blame. But, at worst, they were accessories after the fact and, at best, innocent bystanders.
I'll go get a loan or value my house at the value in thirty years, instead of the ‘value’ of it today.
Awesome way to do business.
Given today's real estate market, the value of your home is probably less today.
But, if you were forced to value it at zero, even though you are current, solely because you can't sell it tomorrow, how would your balance sheet look? Could you get another loan? Could you continue doing business as usual?
I regret you fail to understand the proposition -- the audit/accounting rules worked quite well for over one hundred years...until Sarbanes-Oxley.
Evaluating securities has always required judgement. That has always been the rule and will always be so.
It may help to bring and end to the firesale valuations that are now the rule.
I wish more people would research securities rather than just jump on them because someone says to. I had a friend who lost 8 million because he followed the advice of his sons who said “Buy Enron, Coastal and WorldCom”. He lost the 8 mil in one day or so. He didn’t do his homework.
Amen to that!
Thank you for your reasoned words. Sarbanes-Oxley has been a festering boil on the arse of the financial markets as long as it has existed.
Just how long must we pay for the Enron blow out?
How many trillions do we dump down the hole in penance?
Color me disgusted....
Market value reveals the price of it.
I'm not an accountant, nor have I ever worked in the financial business.
As such, I always wondered why companies were allowed to write down losses on devaluation of assets over a period of years.
Having seen the consequences of Sarbanes-Oxley, now I understand why...
Just like during the government created S & L crisis. What we have is legal looting. That is not how a market economy should behave.
The trouble is that we have too much govt. meddling. If the market set interest rates the massive run ups wouldn’t have happened. If the government backed political hot houses - Fannie and Freddie - had not dominated/created a massive secondary market most of the fraud would not have happened.
Tragedy of the Commons plays out all the time.
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