Missing the Mark on Mark-to-Market: Congressional Quotes

by: Vinny Catalano

Poor FASB chairman Bob Herz.

Rarely has one witnessed such an asswhooping the likes of which the House’s special committee gave to FASB chairman Bob Herz yesterday on mark to market. The pounding came from both sides of political aisle as they told story after story of banks and businesses within their districts and how mark to market has wreaked havoc on their ability to do business.

Yet to my ear nothing captured the mood of the hearing more than the following exchange between Mr. Herz and the Republican congressman from Georgia, Tom Price (R), regarding the three-week timeframe (which New York Democratic congressman Gary Ackerman exacted from Mr. Herz earlier) in which FASB would provide new mark to market guidelines:

Congressman Price: Mr. Herz, I understand that you said within three weeks you’ll be able to issue new guidelines, is that correct?

Bob Herz: That’s what I am going to go back and talk to my board members about. Remember, I have one vote of five. I will clearly take back your very clear message from today. But I cannot do it by myself. I have four other very conscientious board members…

Congressman Price: Do we need to bring the other four in here?

Note: in a later testimony, upcoming podcast interviewee Bob McTeer (March 25) and former FDIC chairman William Isaac noted that mark to market rules state that banks must write down their losses entirely and immediately BUT can only accrete any mark to market gains they may experience. Yet another reason why you can kiss mark to market as we know it goodbye.* To that I say, Halleluiah!

* This point modifies and clarifies the following segment of my blog posting of February 24th, The Damage Has Been Done: “In fact, one could argue that repeal or modification of mark-to-market will actually inhibit, if not outright eliminate, the recognition of the capital appreciation potential in many of the panic driven depressed assets once fear recedes and balanced thinking returns. Under such conditions, one can only conclude that the winners will be those who scoop up the babies thrown out with the bath water. Tragically, those winners are not likely to be the entities who were forced to writedown all the "toxic" assets - the banks.”