Forbes: Market-to-market rules should stop

Contra Costa Times ^ | 030909 | Forbes

[Fred]

An accounting rule that requires banks and insurance companies to write down assets to reflect market values is worsening the financial crisis and should be suspended, said Steve Forbes, chief executive officer of Forbes Inc.

"Market-to-market accounting is destroying capital of insurance companies and banks," Forbes said Monday in a Bloomberg Radio interview. "They have to suspend it completely and start over again. It is the equivalent of saying, 'Put your house on the market and sell it by 2 p.m.' You are not going to get a very good price for it."

[Sig Sauer P220]

I think the term is mark-to-market.

[sarasota]

Not going to happen. These are the folks who have lined the pockets of the Obamination and they are being served. And Wall Street can just continue its ride to the bottom of the porcelain bowl to make room for the socialist agenda.

[ClearCase_guy]

Absolutely. I'm convinced that the solutions to these problems are pretty straight-forward. But the best solutions would cause discomfort among people who have bought influence specifically to avoid discomfort.

We will pay a heavy price for our government's refusal to do the right thing.

[stayathomemom]

I think the term is mark-to-market.

Market-to-market has something to do with a nursery rhyme.

[Wallace T.]

These rules were changed in the aftermath of the S&L debacle of the 1980s, when moribund thrifts were kept alive even though their assets, mostly real estate loans and foreclosed properties, had lost much of their book value due to the severe drop in commercial real estate after the tax law changes in 1986. Without mark to market, ascertaining the actual net worth of businesses becomes more difficult. There were few complaints about mark to market accounting rules until the last several months, when the financial derivative markets started collapsing.. Derivatives are nothing more than a shell game of moving money from one place to another, a problem far worse than the commercial real estate problems of 20 years ago. When all was said and done, even after “flips”, overstated appraisals, and declining markets, there was still a tangible asset that would retain some fractional value. With derivatives, there is nothing, toxic waste, as Warren Buffett has said.

[stayathomemom]

I don't know anything about this, however, the first time I heard this term used was when the market crashed in September. Newt Gingrich was on TV saying that if they did away with this policy, it would solve a lot of the problem immediately. There was a rally in the market which coincided with his making this comment. I've always wondered if it was a reaction to the promotion of this solution. When Newt talks, people listen?

[TChris]

Contra Costa Times actually wrote it up that way.

*sigh*

Journalists who can actually READ are too much to ask for I suppose.

[Hoplite]

If allowing banks to misrepresent the value of their assets is the answer, someone’s asking the wrong question.

[jiggyboy]

Hey Steve, go all the way, just make audits and annual reports optional too.

[jiggyboy]

"It is the equivalent of saying, 'Put your house on the market and sell it by 2 p.m.'"

The same lie every time. No, it's the equivalent of saying, "Get rid of that Gremlin that's been on blocks in the back yard for twenty years."

[GOPJ]

Without mark to market, ascertaining the actual net worth of businesses becomes more difficult. There were few complaints about mark to market accounting rules until the last several months, when the financial derivative markets started collapsing.. Derivatives are nothing more than a shell game of moving money from one place to another, a problem far worse than the commercial real estate problems of 20 years ago. When all was said and done, even after “flips”, overstated appraisals, and declining markets, there was still a tangible asset that would retain some fractional value. With derivatives, there is nothing, toxic waste, as Warren Buffett has said.

Measured words - what do you think should be done, Wallace T.

[Attention Surplus Disorder]

Great, then they can give me a mortgage on my house that’s 80% LTV on what the house would have been worth 2.5 years ago. How’s that sound?

This has been discussed about half a dozen times in prior threads, altho it’s likely to have just appeared in the CC Times today/recently. [That’s not meant to be an overt or covert “dupe thread” admonition!]

I’m totally against this, as I’ve said several times before. Under some circumstances, I could see it. But the banks have used up all their “gimmes” and then some. And then some more. The first-world world financial system has been permitted to inflict its’ many abuses upon the real-world economy for years. With their excesses, they’ve not only crapped in their own pants, but they have stunk up the joint everywhere and with every thing they’ve touched. For them, interest rates have been dropped effectively to zero, killing savers and forcing the prudent to have to bail out the squanderers in nation after nation. Yet credit rates have eased only slightly. Legitimate businesses cannot get credit, yet this cabal gets break after break after taxpayer bailout after taxpayer bailout, executive bonus after executive bonus. So the banks have been given every imaginable break to help them out the quagmite they themselves created, and this piece of advocacy is a prayer that they be given yet one more opportunity to lie about their assets. The nations who sacrifice their economic future for the sake of these few banks get what? Does every American get a Citi or a Bank of American dividend check from here on out for having bought these banks? No, we only get them as they were before the deluge. They get the Fed franchise to borrow wholesale while we peons get to borrow at retail.

I realize my thoughts may be seen as vengeful and anti-capitalist. Apologies, that’s not my intent. These SOBs have already gotten a dozen breaks in exchange for their sordid lies, and granting them rights to tell yet more lies isn’t the way out.

[agere_contra]

Well said.

The only problem (that I can see) with mark-to-market is that it forced a measure of truth into accounting. Forcing banks to adhere to it burst the bubble. But if the assets had been marked-to-market to begin with then at least one market distortion would never have formed.

I can’t see we’d be better off if all those toxic Tier 3 assets carried two values: a fraudulently high ‘accounting’ value, and the very low value people would actually pay for them.

Still, I’m a neophyte at this and could stand to be convinced otherwise.

[Wallace T.]

Let the bankrupt financial entities and manufacturers fail and have the market sort it out.

Neither the Bush nor the Obama Administrations have been willing to allow the market to deal with these institutions that are beyond bankrupt. We are witnessing a repeat of the 1930s approach of government market manipulation through increased regulation, subsidies, and welfare programs that resulted in the Depression lasting for over a decade, in contrast with earlier panics, which usually resolved in a year or two.

[7thOF7th]

This is the quality of the reporting we get these days. No wonder no one from the press ever questioned Obama and his ideas, they are all illiterate! Affirmative action of the Jayson Blair NY times culture.

[giobruno]

No, you are exactly correct. The banks want it both ways, they liked the market when it overvalued their holdings so they could then leverage out of their minds, and now they want nothing to do with the market while it discounts their crappy, overvalued holdings now.

The Level 3 lie that is going on is a way for the banks to continue to BS about the value of something. The market has a value for their “assets” and they don’t like the answer. Steve Forbes should know better.

Basically, powerful people made bazillions on driving up real estate values through every form of fraud imaginable. Now they have been called on it: “If it’s so valuable, why don’t you sell it and raise cash?”

“We can’t in a down market,” is the reply, so we need to turn to Washington to change the rules so we can wait out this mess. Eat $#$% and die, the house is worth what smart money is willing to pay for it, %$%$%#&@%, no more, no less.

[taxcontrol]

I'm of the opinion that a mortgage could be valued at it's contract value if the home owner is current on payments and has not be late in payments at any time for the trailing 12 months. I also believe this valuation should be limited to first mortgages that are 10 year fixed or longer terms. ARMs and seconds should be valued at market prices to reflect their historically greater risk.

This would create a natural tendency for banks to want to lend long term fixed mortgages rather than the quick cash, no money down, ARM type loans that are in my opinion little more than junk loans.

Of course, I also believe that people should be financially able to qualify for the loan and actually be able to repay the loan, so I guess that I'm “out of touch”.

[Ford4000]

Saying it is either mark-to-market or misrepresentation is a false choice.

A one year rolling average could be used, for example.

[dfwgator]

it would solve a lot of the problem immediately.

Maybe it would improve things short-term, but long-term it would just lead to a repeat of the disaster, only worse.

Take the hit now, learn your lesson, and move on. Keep Mark-to-Market.