Another “Mark to Market” Debate is Approaching

In an article published on CNBC’s website, Death To Mark-To-Market – Tomorrows Playbook –, it was pointed out that on April 2, 2009 regulators will again reconsider the official position on the “Mark-to-market” rule that was initiated in November of 2007.

This has become one of the most controversial aspects of the current financial crisis with support for maintaining the rule coming from such stalwarts as Tim Geithner, Ben Bernanke and Paul Volcker, all prominent players in the Obama administration.

Opponents of the “mark to market rule” aren’t without considerable financial expertise also.

Former FDIC Chair William Isaac placed much of the blame for the subprime mortgage crisis on the Securities and Exchange Commission and its fair-value accounting rules, especially the requirement for banks to “mark-to-market” their assets, particularly mortgage-backed securities.[6] Whether or not this is true has been the subject of ongoing debate. [7][8]

As mentioned in a previous article, Why Not Suspend “Mark to Market”? other noted experts such as Steve Forbes have also opposed the rule.

The issue was first addressed in this blog in the articles, Bail out, Investment or Moot Point? and Was John McCain Right About Wanting to Fire SEC Chairman Cox? « Earl says ….


Thoughts on Obama’s Comparison of Tim Geithner to Alexander Hamilton

Since making that comparison several days ago, I’ve heard several news commentators hail Barack Obama as a scholarly historian. Duhhh!!!!

Other than exhibiting what should be a high school senior’s knowledge of American History, I don’t see any indication that Barack Obama’s knowledge of American History has any depth.

Sure, Geithner and Hamilton are/were the Secretary of the Treasury … Hamilton being the first and Geithner … hopefully not being the last.

And, yes, they both appear to have a propensity to piss people off. I don’t know of any single detractor of Tim Geithner that stands out among the growing crowd, so I suspect that his “Aaron Burr” is more a reflection in the mirror than any one individual. Right … I think Geitner’s own worst enemy is himself.

Beyond that, there is really no comparison in spite of Barack Obama’s claims.

Timothy Geithner has literally bounced from one government job to another receiving accolades for, at best, dubious performance.

Alexander Hamilton was, on the other hand, a person with considerable experience in the private sector, had considerable military experience, and actually performed services to the country that increased it’s financial stability.

That appears to be in marked contrast to Tim Geitner’s bunglings from failure to pay taxes to failure to perform due diligence regarding AIG and other financial institutions and actually recommending the wording of the Dodd Amendment to the recent stimulus bill.

So, why are there 17 high level vacancies at the Treasury Department? It’s not due to a Congress that’s willing to approve any pet Orangutan that Barack Obama might nominate. I’ve heard it suggested that it might be because of the propensity for many of Obama’s “tax evading” nominees receiving too much scrutiny. To the contrary, that seems to be more of a prerequisite and badge of honor rather than a hindrance. So, I don’t buy that argument.

I think it has to do with Tim Geithner. I don’t think anyone wants to work for him. Chew on that thought for a while.

So, is Barack Obama sticking by this bonehead because he’s such a great financial expert?

Or is it due to some plain ole’ cronyism. You know. Geithner’s father provided Obama’s mother with a job, so Obama is providing his son, Tim, with a job.

Let’s look at Geithner’s record.

As governor of the New York Federal Reserve, he oversaw the collapse of several major banks based in New York, Bank of America and Citibank. He even encouraged or strongarmed BOA into buying Merrill Lynch … the last straw that has practically broken BOA’s back.

He’s been an ardent supporter of  “Mark-to-market” accounting, a stand that I believe will eventually prove to be the single most important cause of the collapse of the banking industry.

He was the single most important person in orchestrating the initial $700 billion plus stimulus package. Time and numerous Monday morning quarterbacks will eventually discern the wisdom of that move. My personal opinion is that if “mark to market” had been suspended or amendeda year ago, the initial $700 billion wouldn’t have been necessary for any reason.

Then we find he doesn’t think, because of his exhalted position, that he has to pay income taxes. And when he finally does pay them, the IRS gives him preferential treatment by not applying penalties like they would to 300 million other people. Hell, they’ve tried to hit me with penalties for taxes that I paid on time. I suppose you and I are supposed to make up the deficits in collections caused by people like Mr. Geithner and former senator Tom Daschle who think they’re too important to bother with paying taxes.

Then he adds wording to the recent stimulus bill to exempt the bonuses paid to the financial division of AIG, and hides in the closet about the issue until Senator Chris Dodd, tired of taking all the heat for his (the Dodd) amendment, finally rats Geithner out.

So, we now find Barack Obama adroitly blowing smoke up our derrieres by comparing Geithner to Alexander Hamilton. And we find numerous news commentators hailing Obama as an adroit historian while they, too, have a proctoscope rather than a megaphone firmly pressed to their lips.

Break out the jar of Vaseline, we’re going to get at least 3 plus more years of this treatment so we may as well try to ease some of the pain of being repeatedly buggered.

Obama, Geithner and the AIG Bonuses

Like everyone else, I’m outraged at the bonuses to be paid to AIG management which was announced over the weekend. But, who is responsible for the outrage?

AIG, since last year, has received nearly $200 billion in federal assistance. The bonuses totaled a little over $190 million.

From Hank Paulson, George Bush, Jr., Tim Geithner, Barack Obama, all of their advisors and all of their lawyers to Congressional members and their staffs laden with lawyers, it’s amazing that no one apparently thought to ask a simple question, “Are there any pending bonuses or benefits that we should know about that may have an adverse effect on the appearance of these loans?”

To me, it seems that this is like a physician treating an infection with an antibiotic and failing to ask if the patient has an allergy to the chosen antibiotic.

AIG has received multiple sums of money from the federal government, most recently since the Obama administration was installed. The issue of bonuses being paid by corporations receiving federal TARP money has come up repeatedly. A particular example would be the bonuses paid to Merrill Lynch managers after Bank of America bought the failed brokerage/ investment bank.That issue arose more than three months ago.

In addition to the $150 billion that was authorized for AIG under the Bush administration, under the auspices of the Obama administration AIG has received another $30 billion since the first of March.

You would think that, with all that has happened in the past year, at least one person out of the multitude of “supposedly smart” people would have thought to ask a simple question.

Watching Barack Obama and Tim Geithner at their press conference during a meeting with representatives of small businesses and community banks this morning, I thought their level of indignation was somewhat ironic. They were the very people who were responsible for this latest outrage by not anticipating the possibility of the bonuses being present and failing to perform due diligence.

Do you think any of the people they were talking to would have made the same mistake twice or not learned from others highly publicized errors? I doubt it.

Update: See what “Freedom Eden” says about the issue …

Geithner: AIG Bailout and Bonuses

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.