The mark to market accounting controversy
About mark to market, talked about on squawk box on 10-29-08:
It is ridiculous that anyone would want to not show securities at their current fair value based on how much they are worth in the open market. If no one wants to buy them then they are not currently worth anything. If the company or bank holding them wants to continue to hold them they can, but it seemed that the issue being discussed was that this effect causes banks and companies holding these securities to become insolvent. Why shouldn’t it?
The reason this decline in value caused these companies to become insolvent is because the amount of leveraging that was allowed. The companies or banks that had these securities and kept a low leveraged rate are doing fine right now. This shows that it is not about the mark to market rule but about the irresponsibility of these companies and institutions to manage assets properly and use prudence. There has been cries for transparency… Not marking these securities at fair value, based on what the market will pay, would make the reporting of these securities very opaque. This would then just delay the effects of the true problems.
Related posts:
