Posted on 04/02/2009 6:09:37 PM PDT by Kaslin
Regulation: With the stroke of a pen, the Financial Accounting Standards Board has eased one of the most onerous burdens on the U.S. banking system. In case you didn't notice, it sent stocks flying.
The so-called FAS 157 rule, which the public took little notice of, was imposed on the banks in 2007. It forced them to take what are long-term assets and mark them down as if they were short-term ones, based on current market conditions.
It might be coincidental, but this was about the same time that banks and other financial firms began suffering problems that have since left the world economy gasping for air.
In a time when markets around the world have been battered by the fiscal crisis, mark-to-market has made things worse. It has severely damaged banks' balance sheets, forcing them to shrink capital and rein in lending.
For capital adequacy purposes, bank assets have had to be marked down to market value even if loans are being paid on time.
This is an inversion of long-standing banking practice. As economists Brian Wesbury and Bob Stein of First Advisors recently wrote, "The accounting rules force banks to take artificial hits to capital without reference to the actual performance of loans."
Bingo. From the late 1930s to 2007, the U.S. banking system was reasonably stable, with a few exceptions. One big reason for this is the absence of mark-to-market.
(Excerpt) Read more at ibdeditorials.com ...
So the banks can mark a toxic asset worth crap into a much higher value to show faked big assets on their balanced sheet. In this case we are back to the same problem that caused the crisis to begin with. This is insane.
Mark-to-market was largely responsible for creating the present crisis and ending it will go a long way toward ending it.
This is a necessary step to recovery. Let’s hope Obama’s people are paying attention.
No, this will allow banks to mark an asset at what they one day hope to be able to sell it for. If the bank has enough liquidity to hold onto the asset there is no reason they should be forced to undervalue it.
Enron comes to mind when looking for a reason mar to market came about. It was a measure to try to instill a little ‘honesty’ in the system. But I do not think it a coincidence that 2 weeks after imposed the bear market began , about nov 15 2007.
Socialism? If mark-to-market is the antithesis if socialism how come Ronald Reagan never imposed it?
This is a difficult question.
Say you have a mortgage that is more than the value of the house, but the homeowner is making the monthly payments anyway.
It would be hard to value such a mortgage at either 100%, which is what traditional bank accounting calls for, or at the 50% a speculator might be willing to pay.
What do you mean here?
My point is that if this procedure is going to make the markets rally then Obama will take credit and he will be further encouraged to impose socialism through trillions of wasteful spending, increasing taxes, and printing money. Once socialism is fully imposed than the economy will collapse.
that is scary
Oh, lie down for a while and get over it. Obama is probably not happy about the accounting change. It puts the private sector in a stronger position.
It is scary. It is called the POISONED CAKE.
NO. Obama isnt happy when the markets go up. He has systematically been hammering them down. At first I thought he was just an idiot. Now I think it’s on purpose. If your 401k is worthless, you lose your job and your health insurance then you surely need the govt to step in and take care of you. The 401k mess ( values dropping into the toilet) certainly takes away the idea of privatizing social security. Can’t trust the market. You have to trust SS to take care of you in retirement. Up markets don’t make Obama more powerful. Down markets do.
No jveritas its not that stark. If the mortgage owner is making payments, the mortgage is worth something not zero.
What market to market said essentially was if you can’t sell the asset today (with no market price), then it is worth nothing. But my house isn’t worth what I could sell it for in the next 24 hours, its worth something.
It forced them to take what are long-term assets and mark them down as if they were short-term ones, based on current market conditions.
.
Your right, banks can now have you look at long term assets through rose colored glasses. Ain’t no bank going to be realistic, the market conditions and depreciation won’t be represented so to maximize valuation on every asset
That is true only if the banks go back to more conservative leverage ratios. This action, plus high leverage, would mean the banks could be on the edge of insolvency.
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