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alstry (35.68)

RUN for Cover

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September 28, 2008 – Comments (14)

SEC. 132. SUSPENSION OF MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY.—The Securities and Exchange Commission shall have the authority under securities laws (as such term is defined under section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or oder, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.

End to mark to market accounting.  Now no one will know what the true capital base of an American Company will be.......UNBELIEVABLE!!!!  This is actually more dangerous than the $700 Billion welfare payment.

You think foreign investors are going to want to hold dollars without transparency in the banking system.  The dollar may crash and interest rates skyrocket as everyone runs for the exit at the same time.

Is Paulson and our Congressional leaders insane?????  Are they intentionally committing economic treason against America.

Why make accounting more opaque when trust is the issue causing all the problems.  So now we are concealing the value of assets on our public institutions books????  This will create fireworks.....can't wait for the booms.

14 Comments – Post Your Own

#1) On September 28, 2008 at 6:30 PM, Gingerbreadman55 (32.94) wrote:

could you explain exactly what mark-to-mark accounting is?

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#2) On September 28, 2008 at 6:40 PM, UltraContrarian (32.52) wrote:

Any CFO ordered to suspend mark to market accounting should resign in protest.  Their ethical duty is to inform shareholders, bondholders, and employees of the financial condition of the company.  An SEC order can't abrogate that duty, for that matter legislation can't either.

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#3) On September 28, 2008 at 6:41 PM, jmt587 (99.88) wrote:

It may be a while before the US sees another boom.

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#4) On September 28, 2008 at 6:48 PM, columbia1 wrote:

Boom Boom, out go the lights!!

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#5) On September 28, 2008 at 6:55 PM, lquadland10 (< 20) wrote:

Is Paulson and our Congressional leaders insane?????  Are they intentionally committing economic treason against America.  Yes they are and watch the fire works this week. 1776 

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#6) On September 28, 2008 at 8:27 PM, rd80 (99.11) wrote:

Suspending mark-to-market accounting may be the only thing in this package that should be passed.  It might do some good and costs nothing - as in $700 billion less than the rest of the bill.  I know it isn't the cause of all the problems, but it sure isn't helping.

I also understand mark-to-market can be abused.  But it can also be a ridiculous hammer.  For example, when Merrill sold a bunch of paper at 22 cents on the dollar or someone else sells from a distressed position.  That then becomes the new benchmark and firms have to value their similar paper at the new market even if it's performing.  

For those opposed to suspending it, please explain how you mark assets to market when there is no functioning market for those assets? 

Suspending mark-to-market could include requirements that quarterly reports still include that valuation as a note.  That way the accounting is clear to all the stakeholders.

Gingerbreadman55 - mark-to-market requires firms to value many of their assets based on current market prices.  On a bank balance sheet, you'll see some assets listed as held for sale and others held in portfolio.  The held for sale stuff needs to be marked to market.  Held in portfolio can be valued on other basis like discounted cash flow.

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#7) On September 28, 2008 at 8:36 PM, alstry (35.68) wrote:

Merrill actually sold the assets for $0.06 cents on the dollar factoring in the non recourse financing.

Relatively very few assets have non functioning markets...there reasonable judgment can be used and not abused...either way.

Those assets that have a market....than mark it....plain and simple.

Without trust...our financial system will collapse...much sooner than many think.

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#8) On September 28, 2008 at 8:58 PM, rd80 (99.11) wrote:

It's my understanding that mortgage backed securities happen to be one of those very few non functioning markets. 

The current state of mbs markets would be like going to trade in your car and the dealer offering only a quarter of blue book because one like it sold for that price at the police auction last week when bad weather kept most of the buyers away. 

As for trust, require that if mark-to-market isn't used the statements need to include notes explaining why mark-to-market wasn't appropriate, how they valued the assets and what the valuation would have been under mark-to-market.  

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#9) On September 28, 2008 at 9:06 PM, UltraContrarian (32.52) wrote:

Suspending mark to market is an excuse to let the executives of insolvent companies keep pulling in a paycheck.  Just like suspending short selling, it works against efficient price discovery.  If we drag it out we will see a protracted recession like Japan in the 90s.

On the other hand, injecting $700B may either accelerate or slow price discovery, depending on how poorly Congress and the Fed structure it.  But at least it would treat the problem and not the symptom.

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#10) On September 28, 2008 at 9:21 PM, alstry (35.68) wrote:

Guys you just don't get it....yes MBS is a big issue...

but so is Muni Bonds, Corporate Debt, Commerical RE debt, Credit Card Debt, Auto Loans, Private Equity Bridge Loans....and so on and so on......all defaulting now.

The only reason MBS are illiquid is because they have little value for certain tranches...if things turn around in the future.....well that is a risk one takes......what they are worth today is what a willing buyer is willing to pay.....

Right now there are over 200 well capitalized players in the MBS markets......liquidity is not an issue...only value.

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#11) On September 28, 2008 at 9:55 PM, russiangambit (29.94) wrote:

Ok, so first they ban short selling , now they thinking about suspending mark-to-market accounting. So, how are they planning to vaue these assets?

I heard someone suggesting NPV. But as someone who had to calculate ROI for projects on a few occasions, I can tell you, you need to divide any such NPV by 5 at least. And they must  list all the assumptions in the financial statements.

I think another suggestion, - creating an exchange for derivitives makes more sense. It will add transparency, suspending MTM will not.

It is all smoke and mirrors.  Suspending MTM will only prolong the crisis since nobody will believe the numbers anyway.

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#12) On September 28, 2008 at 10:10 PM, Gingerbreadman55 (32.94) wrote:

Thanks rd80 - I'm educating myself on the subject matter courtesy of wikipedia too :)

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#13) On September 29, 2008 at 1:40 AM, dwot (99.57) wrote:

I ran last year...

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#14) On September 29, 2008 at 4:33 AM, jester112358 (29.46) wrote:

There is a way to estimate values of "assets" for which there is no legitimate market.  Look at the cost of insuring these held debt assets by making the CDS (credit-debt swap) market spreads public knowledge (this is the spread in interest rate above the so-called risk-free short term T-bill rate (which I think is currently close to 0!).  The cost of insuring bad debt (i.e. likely to default) is huge for firms like Ford, GM, WB, and formerly WM.  For example, WM had the highest spreads of any of these firms prior to its default.    Obviously the CDS market was doing a pretty good job (as do all free markets) at the arcane task of price discovery at estimating the probability of default.    It works just like stocks, I offer (ask) to sell asset A but there is no market at my price, so I keep lowering it until it meets the hidden "bid" of a counterparty.  Voila, a winner and a loser is created and this determines future prices.  Its amazing, weird but actually great at predicting future price outcomes, the weather, election outcomes etc.  It can tell us taxpayers what these "assets" are really worth.  Of course, the market maker can try to manipulate the market prices but the answer to this is to have competitive exchanges.  Lets try it with these CDOs.  This could be extended to CDOs backed by MBSs by allowing regulated market making in these derivatives.  Government is horrible at picking winners and losers and should not be allowed to do this.  

 

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