I think if we just adopt IFRS accounting reporting, which allows write ups of asst impairement, there wouldnt be such a mess in US banks.
Yeah, an interesting question is why hasn’t the SEC Chairman Cox suspended the mark-to-market rule. I think he can do this single-handedly.
there was an article on forbes.com last week about this (can’t find it now) that said basically to let banks temporarily “seal off” bad assets on a separate part of their balance sheet they could mark to model interesting idea
One of the main drivers for mark to market is because of the lack of transparency and extremely slow recognition of losses in the late 80s/90s bank crisis. The reason that the assets are continually marked down are because there are markets where nobody wants to buy them. Do you really think that investors would be better off if the only thing disclosed is what the company says they are worth as opposed to that similar assets are actually selling at? I don’t disagree that to some extent the mark to market rules may have played its part in certain circumstances of forced selling, but the heart of the problem is that these institutions provided credit that they can’t collect and now have bad assets.
Yup. That and the uptick rule.
Yea, this is not an accounting problem. In fact, I think the rest of the world has market to market, which allows a slow unwinding instead of what we have today. Add it to the list of blame: Bush Short Sellers Speculators ACCOUNTING What’s next?
so why not mark to model… but then require that they disclose the model/assumptions that were used.
mik82 Wrote: ------------------------------------------------------- > I think if we just adopt IFRS accounting > reporting, which allows write ups of asst > impairement, there wouldnt be such a mess in US > banks. You don’t impair an MBS, you mark it down (and up) to what you could sell it for in the market.
theyare Wrote: ------------------------------------------------------- > One of the main drivers for mark to market is > because of the lack of transparency and extremely > slow recognition of losses in the late 80s/90s > bank crisis. > Yes > > The reason that the assets are continually marked > down are because there are markets where nobody > wants to buy them. Do you really think that > investors would be better off if the only thing > disclosed is what the company says they are worth > as opposed to that similar assets are actually > selling at? > I don’t know and generally I am in favor of mark to market pricing more than most people. But here we have odd stuff like the gov’t telling us that these securities are worth more on a “held-to-maturity” basis than a “mark-to-market” basis but the gov’t enforces capital requirements based on “mark-to-market”. Lots of people are suggesting that many securities just can’t be marked to market at a price justified by their cash flows and reasonable estimates of the riskiness of the cash flows because there are’nt any buyers. I think reasonable people can disagree about whether the capitalization of a bank should depend on an estimate of its future cash flows or its liquidation value. > I don’t disagree that to some extent the mark to > market rules may have played its part in certain > circumstances of forced selling, but the heart of > the problem is that these institutions provided > credit that they can’t collect and now have bad > assets.
why not mark to imagination? Tha’ts just silly to blame a more transparent accounting method. The reason why we are in this mess is due to a number of factors 1. greed 2. rating agencies in bed with corporate issuers 3. the belief that home ownership is universal (it has to be earned not given away). which lead to “victims” of unscrupulous brokers (aka people who should have known that if they make 20K/year they can’t afford to purchase a $1MM property - common sense goes a long way - I recognize this is an exaggeration but its meant to prove a point) 4. unscrupulous brokers (see item # 1) 5. “securitization” theory (if I put together a bunch of dog sh*t into a big pool maybe dog sh*t squared will have a higher credit quality than the original dog sh*t - newsfash… it’s still dogsh*t
good God, you guys are kidding, please if you change your measuring tape, it doesn’t make your thing longer or shorter. crap is crap, whether you put perfume on it or not, and no matter how long you plan to keep it in your trash can vs the landfill. if this indeed is the argument you are making, then most sell side analysts should be fired immediately for failing to adjust their models for this accounting treatment. please the uptick rule is a more complex issue - although i am (as a market participant) against it. but for the sake of orderly market movements and avoidance of panic, i can see some logic for things like uptick rule and circuit breakers. but it just sounds wrong to penalize one side (the shorts) while giving manna from heaven to the longs. not fair, but life isn’t as well.
If you put perfume on crap you can leave it around the house longer until you figure out what to do with it.
I have no problem with “mark-to-market”, but what do you do when the market is broken and has essentially been replaced by panic prices? That’s not really a market price and doesn’t resemble reality.
i see no problem with it. A balance sheet is a reflection of the value of the assets at a point in time. And this is what th asset is worth at that time. Perhaps there should be a note to it explaining more about why it is valued like it is currently and what it could be if held to maturity
i buy that - disclose both MTM and HTM values, and let the investor decide hiding MTM value is only going to cause opacity and create mistrust and doubt
Except that’s not the end of it. We have gov’t regulations determining capital adequacy based on MTM values. If the MTM values are not high enough, the gov’t restricts the business the bank can do and can ultimately close them down. It’s not just about investors, it’s about long-term funding rules.
I believe that is how many of those assets used to be reported, with footnotes indicating the perceived difference. The question becomes which value goes on the balance sheet and thus drives many other ratios that the regulators will monitor…HTM or MTM? A value is not always a market price, but I agree the “value” is what should be reflected in this case.
Why aren’t rating agencies getting more heat from the public? Because everyone is still relying on them (at least on paper)? I don’t get it
all this talk of regulation, maybe the rating agencies need to be regujlated? Or a govt controlled rating agency?
maddane Wrote: ------------------------------------------------------- > all this talk of regulation, maybe the rating > agencies need to be regujlated? > > Or a govt controlled rating agency? I disagree with any regulation (especially government) of the rating agencies. I think this puts a big fat stamp of approval on the ratings these firms give. The gov’t should force the rating agencies to simply disclaim whether they have a stake in the paper they are rating.