Mark to Market -- Ultimate Evil or Saviour of the Financial World?
At the AAO Weblog - The Pending Fair Value Fracas
Jack Ciesielski observes:
The current "blame the accounting" mode is like berating the UPS delivery man who brought you a pair of tan Gucci loafers instead of black ones you ordered. What did UPS have to do with faulty goods? Nothing; Gucci screwed up. What does Statement 157 have to do with crummy asset values? Nothing. Managers screwed up. It's doubtful that many critics of Statement 157 actually ever read it.
Keep Mark to Market Accounting
Where do we Go From Here, By Elizabeth MacDonald, FoxNews, September 22, 2008 9:50AM
If market watchers who know anything about accounting thought this through, they’d know to stop pressuring the accounting rule makers to suspend fair value accounting because the taxpayer is now on the hook for these assets.
Yes, governments affected by the Latin American debt crisis temporarily suspended mark to market accounting, where companies pricetagged their assets based on prevailing market prices (meaning these things were bottoming fast because no one wanted them). At that time, they let companies under their purview use historic pricing.
A Plan to Stop the Mark-to-Market Meltdown
Without Undoing the Good that Mark-to-Market
Accounting has Done
Brian S. Wesbury and Robert Stein, economists and market forecasters at First Trust make the case for suspending mark to market accounting:
And the US should avoid creating moral hazard whenever it can. But saying; “I told you that you would stay in your room for a whole week if you disobeyed, and I don’t care if the house is burning down…you are going to spend an entire week in your room,” is absurd. If we are really talking about the end of the world as we know it; who should really care about relaxing the rules for a short time to get us through.
Let’s not take this the wrong way. Mark-to-market accounting is a good thing. It makes sense most of the time, and for most financial instruments that are traded frequently, and in the open. But there are special circumstances. And today’s financial market problems would meet any definition of the word special.
And at BusinessWeek
The conversion to bank holding companies can help both Morgan Stanley and Goldman organize their assets, reports the Journal, and puts both in a much better position to be acquired, to merge or to acquire smaller companies with insured deposits. It also may allow Goldman and Morgan Stanley to avoid using of mark-to-market accounting -- which forces companies to value their assets based on the current market price.