Mark to Market

So the Financial Standards Accounting Board finally decided today to allow banks some leniency when valuating their “toxic assets”. Is this move going to help things, or make them worse? On one hand, it allows banks to increase their earnings (maybe artificially so), therefore requiring less of our tax dollars for a bailout. On the other hand, doesn’t it just further obscure the actual values of these subprime securities held by the financial companies? And isn’t this going to undermine BOs plan to use govt money to buy the “toxic assets” by artificially inflating their price?
Mark to market accounting rules mean that you value the assets to reflect “current market conditions”? What the heck?!

In layman’s terms, how does this effect investors?

are you asking me, or just summarizing my post?


To be honest, the debate over mark-to-market accounting practices may be more of an academic debate to most of us, although i’m sure there are some accountants out there who would love to argue about it…To answer your question, the practice of valuating these toxic assets probably doesn’t directly affect the individual investor, unless you happen to be Warren Buffett or George Souros or somebody like that. I was thinking more about the larger possible economic consequences of these actions, in relation to the stabilization of banks, and the possible govt bailout if the govt ends up buying these toxic assets. Just wanted to get some other point of views, as I know there are some great economic minds on these forums.

I really thought somebody would want to discuss this…I guess not.

I’m interested in this topic but don’t know enough about it to discuss it. I’m waiting for a good discussion myself to learn more about it.

I am also curious with mark to market in addition to the bail out of toxic assets by the FDIC … Will the banks continue to be willing to accept short-sales as they have in the past?

The success or failure of granting some flexibility with regard to mark to market practices hinges on mortgage loan borrowers.
When banks value their assets, they are required to “mark to market” or value their assets at the current price they could sell these assets for in the open market. Since no one wants to buy American mortgage debt or its derivatives right now, market value is quite a bit lower than the expected return IF people paid their notes.
So the real answer is: it depends upon whether Joe Q. Citizen in the United States of America can and/or will pay his mortgage. It looks like many people are defaulting because they cannot or do not want to pay their mortgage. Many others are getting loan modifications, and, it seems that the jury is out as to whether this lowers the default rate or not.
This proposal could be a colossal failure if people continue to lose jobs, go into foreclosure, or simply say “I am not going to pay $500,000 for a $250,000 house!”
What do you think are the odds of those things happening?