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Mark-to-Market: Changing the Rules

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Investors await revisions.

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Editor's Note: The following content was originally posted on the Buzz & Banter and is being compiled here for the benefit of the Minyanville community.


Geithner's Pain (excerpted) - Sean Udall - 3:12 pm on2/10/09

This deal is just too simple to implement I guess. Or we're afraid of making a few people look way too bad? But last week the Financials rallied hared on mark-to-market talk (precisely repeal talk). Many people now share my opinion I've had since October.

Once again, we can throw endless capital at the banks but it has little merit without revising the horrific FAS 157. And we could spend 0 money, and just completely reverse FAS 157 and the banks rally 50-200% across the board in order of duress.

After which, we'd see banks churn out quarter after quarter of profits on historic net interest margins (even on much lower volumes, and write downs of permanently impaired assets).


Eyes of the World (excerpted) - Todd Harrison - 3:40 pm on 2/10/09

I "hear" the mark-to-market argument, particularly if there's a central, governing body that "marks" on behalf of the banks (with full transparency). While I agree that would trigger a massive rally, the government would have pricing power for the entire financial marketplace. That isn't free-market capitalism, it's socialism. Just so we're all on the same page...


Mark-to-Market Thoughts - Minyan Peter - 3:54 pm on 2/10/09

Of late, there have been a lot of comments about the suspension of mark-to-market accounting on the Buzz, and while I'll leave it to others to decide its fate, I'd offer the following thoughts:

Over the past 10 years, we've seen a dramatic migration of financial assets out of "held to maturity" to "available for sale" for 4 principal reasons:

a) the convergence of banks and brokerages,

b) the enormous ramp-up of securitization of financial assets,

c) the fact that mark-to-market accounting (which is used for all available for-sale assets) meant that firms didn't have to reserve for any potential future losses on these assets because of their supposed market liquidity, and finally,

d) all unrealized losses flowed through "Other Comprehensive Income," not the P&L.

What financial institution wouldn't have wanted this? Especially when the bond market was doing nothing but rally over the past 10 years and would come help bail you out of a rough position.

Maybe rather than suspend mark-to-market accounting, we ought to have firms go back and restate their financials -- and see what profitability really looked like -- had they adequately reserved for these assets over time.


"How can I trust you, Jack?" With due respect, Madame President, Ask Around! (excerpted) - Todd Harrison - 10:08 am on 2/11/09

"Mark-to-Market" chatter continues to make the rounds. If they pull that rabbit out of the hat, we'll see a sharp gap higher. That's a different conversation than "I agree with this as a fundamental fix" but so it's said, I think Timmy has this in his back pocket.


Regarding mark-to-market - Fil Zucchi - 10:28 am on 2/11/09

I don't think the mark-to-market problem is so much about how to price the paper, as it is not knowing what they are trying to price. In the halcyon days due diligence for a CDO consisted of looking at the credit agency ratings and figuring out how much you could leverage up the junk.

My sense is that there is no market right now because the buyers of yesteryear would not have bought that stuff had they actually dug into it. They sure as hell are not gonna buy it today (or even look at it) as the world crumbles. Hence the marks.
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