I was reading an article today entitled Realty furvor takes aim at reality in which the author criticizes NAR's cheif economist Lawrence Yun's seeming stance that one of the 'problems' hampering a real estate recovery is faulty (in the author's mind 'faulty' = 'honest') appraisals.
The article closes with the following:
So, in the wake of the greatest credit/real-estate bubble the world has ever seen, we get this: On the one hand, the powers that be decide they really don't want to utilize mark-to-market accounting in the financial system. On the other, those at the epicenter of the real-estate bubble itself are advocating the use of appraisers who will come up with the "right" number rather than a realistic evaluation.
First, I strongly oppose the abandonment of mark-to-market accounting. While I can't claim credit for inventing the term, I like to call it mark-to-fantasyland accounting. After all, how are we, as investors, supposed to determine the value of companies and stocks without understanding, as best as possible, the real value of some of the assets that these companies hold? What I also don't understand is, how stupid do these people think the market is? Just because companies show better earnings on paper because of the abandonment of mark-to-market it follows that every stock analyst, purchaser, and market participant on the planet is going to be fooled by these higher earnings? Maybe some will, but I sure hope not. Despite the occasional mood swings between irrational exhuberance and hopless doom and gloom, on the whole I think that Mr. Market is smarter than that -- or at least I hope so. If not, we're going to be due for a larger dose of increased economic pain ahead.
When you boil it down, whether we're talking about mark-to-market or the home appraisal issue, the question is an extraordinarily simple one -- the answer to which was taught to me by my late father while I was still very young.
"Dad? What's that whacthamacallit worth?"
"It's worth whatever someone is willing to pay for it, son."
How on earth anyone can reasonably argue against a truth so obviously simple is beyond me. Maybe the proponents of abandoning mark-to-market or the chief economist at the NAR never had that exchange with their parents -- more likely though, I think they simply willfully ignore it for the sake of what is convenient in the moment. On a day when Madoff gets an enormously long sentence for perpetrating a scam which included basing victims' financial statements on fiction (and, in my opinion, deservedly so), it seems especially sad.
Russell (a.k.a. TMFEldrehad)