Billionaire Wilbur Ross: Mark-to-market was a mistake
Emily Chasan, Reuters September 22, 2008
Rules requiring financial companies to value assets at current market prices were a mistake and their implementation was botched, billionaire investor Wilbur Ross said on Monday. "I think it was a huge mistake -- both the general concept of it and more specifically the way that it was implemented," Ross said. He said the main problems with the rules, were that accounting treatments for the exact same security can be different for different companies, based on whether they decide to hold them to maturity, or mark-them-to market as part of a trading portfolio. Similar inconsistencies also affect mark-to-market rules about the valuation of complex securities, like credit default swaps, Ross said. "If I write credit protection as a credit default swap I have to mark it to market," Ross said. "But if I write it as a monoline insurer there is no mark-to-market, even though I'm taking precisely the same risk."
While Ross said the market does need more transparency about hard-to-value assets that have triggered billions in write downs at financial institutions over the last year, he felt that the mark-to-market, or "fair value" accounting rules, did not always reflect the substance of transactions.
"I think it was well intentioned and horribly botched," As credit markets seized last year, the mark-to-market rules forced Wall Street banks to become increasingly dependent on their valuation models to come up with figures for their hardest-to-value assets.