Why Not Suspend “Mark to Market”?

Someone, please … answer this question.

Last Friday evening on Fox News Steve Forbes brought the Mark-to-market accounting issue up again. And, periodically, I hear financial analysts from around the world ask the same question, “Why hasn’t the U.S. suspended the ‘mark to market’ rule?”

Last Friday, Forbes emphatically stated that, if the rule had been in place during the S&L crisis of the 1980’s or the earlier financial crisis at the end of the 1970’s, the financial system would have collapsed at either of those times. So, what’s different now?

I have also heard at least one of the numerous commentators on CNBC mention that both Tim Geithner and Paul Volcker are opposed to suspending the rule. My question is, “Why?”. Explain it.

If 91% of the mortgages are being properly serviced, then  why do they have to be valued the same as the 9 or 10% that aren’t?

Nearly a year ago, I first became familiar with this rule when two accountants mentioned it either on Fox News or CNBC. At the time, they stated that the chairman of the SEC, then Chris Cox, had the power to suspend the rule. Later, last fall, the Senate affirmed that the chairman of the SEC had that power.

But …

The Senate in the Emergency Economic Stabilization Act of 2008 ordered the issue be studied by the SEC, Federal Reserve and Treasury Department with a report due in 90 days. That study was done and the report was announced on 30 December 2008, Congressionally-Mandated Study Says Improve, Do Not Suspend, Fair Value Accounting Standards.

So, all of the “experts” said, “No, it needs improvement so we’re going to let it stand while we study ways to improve it.”

In essence, while Rome burns, the experts want to study fire prevention.

Are these the same experts that thought all of these mortgage back securities and fragmented loans were such a good way to make money when things started changing about 20 years ago or sat idly by … possibly like Tim Geithner did as Governor of the Federal Reserve in New York … while the mess was being made?

My question is, “Why not try to put out the fire … then study ways to prevent it from recurring?”

Steve, I guess your problem is that you got your business education at Princeton instead of “Hahvahd”. Common sense carries little weight when it comes to “theory” and “greed”.

“Mark to market” makes great sense as long as a person doesn’t think there’s ever going to be the consequence of a market downturn, even a temporary one.

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