Steve Forbes on "Mark to Market"

[Linda]

"If the president really takes Roosevelt's legacy seriously, he should suspend mark-to-market accounting rules, restore the uptick rule, and enforce the prohibition against naked short selling. If he doesn't, historians will look back in utter amazement at Mr. Obama's preservation of Mr. Bush's worst economic policies."

Steve Forbes Says Barack Obama's Economic Policy Repeats George W. Bush's Mistakes - WSJ.com

Why is nobody talking about this??????

 

[scooterbug44]

I think banks should continue to have to revalue their assets based on their actual value - the rest falls under my "take the idiots out back and beat or shoot them economic recovery plan".

 

[Linda]

This is what Newt Gingrich says about mark to market.

We need to change the accounting practice of the Mark to Market accounting that has crippled our financial markets and economy.


Since the implementation of the Mark to Market Accounting requirement our financial markets and the whole credit industry has been in a rapid decline. The reason for the decline is simple. You have to value your assets at the lowest market price when you do your quarterly accounting. So what has happened is that what a house was valued at 300,000 3 months ago and is worth 150,000 now the asset has lost value and the bank has to show a loss regardless of whether or not the mortgage holder is in default or not. So since the value of the asset is tied to the market and the market is volatile then you have no lending. No lender is going to lend you anything that will be less than what the mortgage is in a short period of time. So until this accounting principal is changed the economy will not get better but worse. I propose to going back to the old accounting policy immediately. And if any accounting changes are to made then have a tripartisan intelligent process to come up with a better practice.

 

[30ashopper]

"If the president really takes Roosevelt's legacy seriously, he should suspend mark-to-market accounting rules, restore the uptick rule, and enforce the prohibition against naked short selling. If he doesn't, historians will look back in utter amazement at Mr. Obama's preservation of Mr. Bush's worst economic policies."

Steve Forbes Says Barack Obama's Economic Policy Repeats George W. Bush's Mistakes - WSJ.com

Why is nobody talking about this??????

Government interfering in the markets is the solution?

I completely dissagree with all of these points.

 

[scooterbug44]

Please explain how letting a bank claim that a house whose actual market value is $150,000 is worth $300,000 on their books SOLVES our problems.

IMO all it does is let banks borrow at higher ratios and inflate the values of assets to justify their dumbarse lending practices - which got us into this damn mess.

I don't care what you think something is worth, I don't care what someone told you it was worth, I care about what amount of cash you can ACTUALLY get for it - and that's what I want loans and those GD mortgage backed securities based on!

One of these days, these damn banks are going to have to pay the price for their stupidity - continuing to prop up inflated real estate values so they don't have to take any kind of hit will NOT solve the problem!

 

[Linda]

Government interfering in the markets is the solution?

I completely dissagree with all of these points.

I'm trying to learn something here and I respect your opinion but isn't the governement already interfering with the mark to market accounting rule? Please go easy on me

 

[FloridaBuckeye]

Government interfering in the markets is the solution?

I completely dissagree with all of these points.

Government interfering in the markets is the solution? That sentence scares me!!

 

[destintide]

marking to market implies that you mark an asset's value according to what it may fetch on the open market. in a market which is characterized by a lack of demand (i.e. willing buyers) the market price may be well below the intrinsic value of the asset.

for example, lets say you own a basket of real estate mortgages on people's homes. b/c of uncertainty in people's ability to repay the underlying debts or a lack of transparency into an esoteric financial instrument the value of the asset is discounted heavily to account for said uncertainty a/k/a risk.

in reality the present value of the expected future cash flows (your monthly mortgage payments) may result in a greater value than the market implied price.

therefore, marking to market may result in financial institutions taking a larger "haircut" than what is really necessary.....which is the complaint with mark to market.

with that being said; mark to market is a problem but resolving its inefficiencies is not an end all be all solution by any means.

 

[goofer]

I am vehemently opposed to changing mark to mkt accounting rules. I support bringing back the uptick rule, ( your losses on shorts can be infinite ) and I am opposed to naked short selling ( you must locate a borrow on the stock you want to short ).

 

[30ashopper]

I'm trying to learn something here and I respect your opinion but isn't the governement already interfering with the mark to market accounting rule? Please go easy on me

This argument that these assets have inherent value is silly, if they had inherent value people would want to purchase them. Suspending mtm results in all the large banks holding these worthless assets for years, clogging up their ability to lend. That's the whole "zombie bank" scenario everyone talks about.

Honestly I don't think mtm will happen, so it's probably not worth worrying about. I would much prefer a major shake out in the banking system, even if that means a good bank bad bank nationalization. But my hope is that these securities will ultimately get flushed out of the system over time naturally.

The uptick rule just seems silly to me. Force a short to sell a security above the price of the last sale. Why? We had a short selling ban a while back which was an even more extreme version of something like this and it did nothing. Securities have value, if you think they are overvalued, you should be able to short. It's part of the normal market system. Why should shorts be penalized when longs aren’t? If we put in the uptick rule, we should also put in a down tick rule, which requires longs to buy a security at a price just below the last sale. (Think about the effect that would have on stock rallies..)

Naked shorts are rare as far as I know as it's illegal. I really don't care much about this, when I short my broker acquires the stock through its computer system. By and large most shorting is not of the "naked" kind. I could be wrong about that though.