TITLE I - Troubled Assets Relief Program
Sec. 132. Authority to Suspend Mark-to-Market Accounting. (5 Comments)
-
AUTHORITY.The Securities and Exchange Commission shall have the authority under the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or order, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.
-
SAVING SPROVISION.Nothing in subsection (a) shall be construed to restrict or limit any authority of the Securities and Exchange Commission under securities laws as in effect on the date of enactment of this Act.
5 comments on Sec. 132. Authority to Suspend Mark-to-Market Accounting.
-
Why wasn't Mark-to-Market accounting not made illegal in the wake of the Enron scandal? Is there a legitimate use for M2M and if so shouldn't it be more heavily regulated than it currently is to prevent what appears to be frequent abuse?
posted by R. Murnen (private citizen) at September 29, 2008 -
Suspending mark-to-market accounting would compound the problem, and would be a disaster for the U.S. economy.
posted by Brad Johnson, CAPAF at September 29, 2008
http://wonkroom.thinkprogress.org/200...
Presumably, free marketeers would want commercial and investment banks to account for the value of their assets according to their value in the open market — what is known as “mark-to-market” accounting. Otherwise, how can we know what the true value of those assets are? And what better way than market-based accounting rules. That was the reasoning behind the decision last year by the Financial Accounting Standards Board to introduce mark-to-market accounting.
Gingrich - and now the conservative Republican Study Committee in Congress - want to end mark-to-market accounting for long-term assets as part of their alternative to the $700 billion financial rescue package proposed by Bush administration Treasury Secretary Henry Paulson this past weekend. Gingrich and the RSC claim that no market exists for long-term assets such as mortgage-backed securities to be priced in.
That’s wrongheaded policy on two counts. First, as equity strategist Christopher Woods, an expert on the reasons behind Japan’s two-decade long economic funk, pointed out recently in the Wall Street Journal, pretending that the value of long-term assets are more valuable than the market says they are would result in financial institutions “warehousing bad debts, Japan-style.” Presumably, conservatives don’t want to engineer the non-recovery of our economy akin to what Japan has suffered since the collapse of its real estate markets in the late 1980s.
Second, the secondary market is in fact accurately pricing the value of mortgage-backed securities. Merrill Lynch & Co in July sold $30.6 billion worth of this kind of debt earlier this year at 22 cents on the dollar — probably an accurate price given that the structure of these and almost all other mortgage-backed securities. These securities contain a complex mix of mortgages (and slices of mortgages) from across the country and from a mix of residential housing. Their price reflects the value of this mix of mortgages as a package, which is exactly what all the other mortgage-backed securities contain. -
I reject Section 132 of EESA 2008, which grants the authority to suspend mark-to-market accounting. Why would supporters of this bill think it's a good idea to allow financial institutions to make up values for CDOs and CDSs that favor their balance sheets and hide any sense of real value for those derivatives? I'm not allowed to make up numbers about the value of the home that collateralizes my home equity line of credit. Bank of America, by the way, just reduced that HELOC on the premise that my home has lost market value. IF it's a good idea to suspend mark-to-market accounting rules to benefit lending institutions, then let's suspend them for borrowers, too, and we can all live in the fantasy land of asset price inflation.
posted by J. Nelson, private citizen at October 1, 2008 -
Mark-to-Market accounting is appropriate and necessary for assets which are held available for sale.
posted by Nathanael Nerode at October 1, 2008
And it is *not* required currently for assets which are *not* held available for sale.
*AND* banks can reclassify their assets as held-to-maturity at any time, if they want to.
Suspending "mark-to-market" is simply a way to allow banks to falsify their books again, just like with Enron. Of course, they are *already* falsifying their books by listing illiquid assets as "available for sale". I suspect they're doing this in order to falsify their "ready reserve" levels.
Suspending mark-to-market is another way to destabilize the markets further, and will certainly result in more bank runs.
However, reminding banks that mark-to-market does NOT apply to all assets, only those held available-for-sale, is a good idea. They seem to have forgotten this. -
Mark to market is a good thing as I understand it. Companies holdings or assets should be valued at todays values not last years or purchased values. If todays values are much lower than last years than shouldn't their assets be shown as such and consequently shouldn't they only be allowed to borrow so much againsta their assets. This makes sense. Did I not hear that some companies are leveraged as much as 30 - 1. These companies should be in trouble. They gambled and lost. There should be oversight for this so this is not allowed again and consequently we should not suspend the mark to market accounting. If anything, we should stiffen the regulation. Thirty to one is not acceptable. Ten to one should not be acceptable.
posted by Jeff from RI at October 1, 2008
Please do not relax this regulation. Jeff