Welcome to Salvation (aka Mark to Myth)

Boy, those crooks down on Wall St. really think they have us this time don't they? Relax the accounting and the Dow goes nuts! S&P 500 up! Markets around the world up! Everything is fixed now isn't it?

Yeah right.......

The scuttle-butt out there is that the big banks could show a 20% profit this quarter with this change in accounting. Heck, any idiot should be able to show a profit when he/she marks his/her assets to be whatever he/she thinks they should be worth. For instance, that house that you took a 500K loan on 2 years ago? You might only be able to sell it in the market for 300K, and you owe 470K on it....

But, with the "new rules" you can just say that house is worth 500K. Voila! You're no longer underwater in your loan!!! Works for the big banks, should work for you right?.... Unfortunately, you live in the real world, and the banks apparently do not. Your house is only worth what the market will pay for it, even if you jump up and down and shout repeatedly that it is worth what you say it is.

Yet the banks will be allowed to put whatever value they feel is "prudent" on that mortgage that you owe to them. (and we know this worked so well in the past now don't we?) So, when the banks come out in earning season, saying that they "made a profit", are you going to really believe what they are saying? If that's the case, let me swing something past Citigroup, JP Morgan, and all the other banks that I owe money to.

Let's see, we'll start with Citibank (C). You know that 7K that I owe you on that credit card? Well, I say the value of that (mark to myth) is about 250 bucks..... Why? Because I am marking it to myth, and, well the rest of the balance was spent on gasoline, and it doesn't exist anymore.... but the $250? I spent that on a TV that's still in my living room. Since that credit card is "unsecured debt", and I have no cash, but I have an asset on the balance sheet I can offer you, I'll happily let you have that TV set that was bought with your money, as long as we agree that the account is now "paid in full"....

Why? Because that's what I say that asset is worth! Congratulations on your new $7000 TV!. Your 7K equals my $250 if we're gonna mark things at what we think they're worth. You idea is probably different than mine though!

JP Morgan (JPM)? Oh you get a good deal! That 12k that I owe you on that credit card you sent to me? I say it's worth $750. I spent that on the new patio set out on the back deck. The other 11K was spent on food to feed my family, Some gas along the way, and ummm..... hmmmm... I think I paid my car insurance a couple of times too. (Go see AIG about that money....... oh yeah, you already got that money funneled through to you anyway, so I'd say we're even on that one.)

Once again, since that credit card is "unsecured debt", and I have no cash, but I have an asset on the balance sheet I can offer you, I'll happily let you have that patio set that was bought with your money, as long as we agree that the account is now "paid in full"....

Why? Because that's what I say that asset is worth!

Capitol One (COF)? American Express (AXP)? Bank of America (BAC)? I've got similar deals for you too, so don't feel left out!!!

The house? Well, according to your books my mortgage is worth the 500K you lent to me (mark to myth) and will only keep appreciating in price over the next 10 years, because "you don't plan on selling these assets anyway".... that's fine, since the market will only give me about $280K right now, and I need to sell since my job is now non-existent, and you seem to have the best offer, so you can have it for your 500K bid, since that seems to be the best offer in the market right now. Again though, just so we're straight, the account is now "paid in full" right?

I keep this up, I'm gonna be debt free before I know it! WOO HOO!

Wait a second...... Citibank, JP Morgan, and the others don't like my valuations of these assets? They don't like MY valuation of the debt that they supposedly own? Absolutely astounding that this approach works for them to straighten their books out, but it doesn't work for me to get my balance sheet right.

OK, we'll take another approach. Being that housing always goes up in value according to their model, apparently my house is now worth more than I paid for it 2 years ago. That appreciation in market value should cover all the rest of the money owed, so, I guess I'll just let the banks have the house and fight over all the money they get from the foreclosure sale to settle the debt owed, since they know what it's worth much better than the market does.

Once again big banks, I'll agree as long as you agree that my accounts are now paid in full and my balance sheet is clear, being that that mortgage is such a boon to your balance sheet.

So here's the deal. Take the house, and all that it's worth and apply it to your balance sheet. Since it is obviously much more valuable to you than it is to me or a prospective buyer. This way we can avoid those nasty things known as "bankruptcy court", and you can show a profit this quarter based on the appreciation in value that MY house has on your balance sheet. You get to show a profit, and I get to get out from under that debt, since you own the debt, you own the asset. You hold onto the house until you're good and ready to sell that off your balance sheet. It's only going to appreciate right? It's a "win win" for everybody!!!

Sounds like a deal to me......

Meanwhile, I'll get back to the real world while you continue to destroy it, by continuing your fantasy world of ever increasing housing values..... Hope that works out well for ya! Meanwhile, "The check is in the mail", and yeah, I'll get to that "unsecured debt" right away, being that credit card is so much more important than making sure there is food on the table for my family. Come and get ALL the stuff that was bought on your credit card over the past few years. You're going to have a tough time finding it though. Remember, you were giving a credit card to a "consumer society"..... I used it to consume!..... Of course, I wouldn't have needed your card to continue consuming if you hadn't inflated gas prices up over $4 a gallon last year on speculation, and if food prices hadn't at least doubled in the last couple of years, all the while, my wages just kept on expanding right? Strange, I didn't notice that! Maybe the government should have done something about all this inflation. Oh yeah! According to their numbers the amount of inflation has been just fine over the past few years, being that no one needs to eat, no one uses energy, and no one needs shelter. Those CPI numbers have been true, honest, and real! Just ask anyone living on a fixed income about how well their COLA provided for them over the past few years!

It seems to me that you all (the banks and the government) have a much better understanding of what things are worth in this world, and you have the models to prove it. So you just continue on with what you're doing ya hear?

I'll start using mark to myth too.......... Boy, My balance sheet is just looking better and better all the time! I'm gonna be debt free and rich real soon!

Meanwhile, good luck with that house.

(Sounds kinda rediculous when you really think about it, doesn't it?)

Comments

[formerhawk:]

Sorry son, your 7K credit card bill is still 7K and yes you do sound kinda rediculous.

Apr 06 08:42 AM

[TeresaE:]

Nicely put.

Here is a good one, you prospective employer is having their risk assessed at "horrible" even IF they are paying their bills on time.

So, the bank is demanding the note be repaid based on financials. Which for some reason are "spot on" when it comes to the banks customers/debtors, yet wrong when it comes to the banks themselves.

Good luck with that. Between regulation, lawsuits, cheap foreigners and yanked credit our jobs are disappearing faster than the government can print the checks. Apparently the banks, international companies and Washington feel we no longer need small business, nor jobs. Nobody wants to work anyway, who needs jobs?

As for your debt, just hold on, once the reality of the dollar creation and new taxes become evident, inflation (real inflation, not the cost of a tv set) will shrink your debt down to nothing. The only problem I foresee is that you won't be able to find any job that will pay you enough to afford to work.

So, once 50% of us are homeless and unemployed, then what trick with the Feds and Banks pull out of their hat? The disappearing executive is what I predict.

Apr 06 09:54 AM

[petyaczar:]

Mark 2 Market should actually be called our for what it is
Mark to Model where the model is based on the last sale
Ergo M2M is really mark to lasat sale.

Mark to Market is beyond Stupid. Its a theoretical construct that requires a willing owner (Unwilling seller) to mark down his assets to the point that a disinterested (unwilling potential buyer) might consider buying the asset.

Show me where - in the real world - An willing owner/unwilling seller is required to mark down assets to the point where an unwilling buyer might consider a purchase of said assets.

Only in Bizarro World. Never confuse accounting with reality.

Dump Mark to Market as they did in the 1930's when they determined Mark to Market contributed greatly to the Great Depression as it sets up a cyclical feedback loop, the worse things get, the greater the mark downs and so the worse things get.

Destroy Sarbanes/Oaxley, get rid of FASB 157.
Reinstate Glass Steagall ACT separating commercial and iinvestment banks
Reinstate the uptick rule on short sales
Up margin requirements on commodities trading to 50%
GET ALL POLITICIANS out of attempting to run U.S. companies.
Make it illegal for politicians to interefere with U.S. copmany operations.

IMO

Apr 06 10:18 AM

[Joe Gardner:]

maybe in your bizarro world..... hyperinflation will take care of that though..... but, you missed the point. The banks have had free reign for the past few years and have screwed things up big time. We MUST stop giving them free passes. Come down to Main St., and you'll find a lot of people that would love to have the same priveleges that the large banks have had. Not that we're dishonest enough to play those games. Just tired of being on the short end of the stick every single time. Sorry Son, but sometimes you just have to open your eyes to catch the sarcasm that's right in front of you.


On Apr 06 08:42 AM formerhawk wrote:

> Sorry son, your 7K credit card bill is still 7K and yes you do sound
> kinda rediculous.

Apr 06 10:57 AM

[fireball:]

joe
good article. a great illustration of more scamming to cover-up scamming.
i sympathize but wouldn't try it. hey i've always been chicken to refuse the progressive marxist income tax too. it just seems you can't beat the lawlessness of the lawmakers or those that they support and protect.
loan me $100. only give me $50 now. then owe me $50. hey that makes us even.

Apr 06 11:09 AM

[William Cowie:]

Great take. Hey, we voted for change, didn't we? We're now finding out what change exactly...

Apr 06 11:30 AM

[henarl:]

Don't forget that you, as an individual or small businessman, don't have the same political and economic clout that the big banks, insurance companies and Wall St. have. That's why they can do things that you can't. Unfair? - well yeah! But then, that's just the way it's always been and always will be. Learn to live with it.

Apr 06 11:58 AM

[reveigel@ms...:]

Have said this on a couple of other articles regarding MTM. Some say it caused the problem, others disagree. Have read quite a few opinions and this is my take: MTM is being used as a scapegoat to cover up years of reckless spending by government, Congress and many of "us folks". Years of deficit spending, causing inflation and thus the devaluation of our dollar. Years of an ever growing and interfering government into the lives of individuals and businesses. A very poor educational program "dumbing down" our people. Passage of rules and regulations and laws making it almost impossible for anyone to provide a service or product necessary for a healthy and vibrant economy. A government obsessed with power and control over its citizens. Politicians more interested in re-election and less interested in what is good for America. Politicians who know little about balance sheets and income and expense statements. Politicians who think money grows on trees and not off the sweat and toil of its voters who it taxes with little restraint. In summary, a government run amok, a people who have been brainwashed rather than educated and incompetent politicians not qualified to run our Nation. MTM is a scapegoat. And fiddling with this accounting rule is not going to correct years and years of derelict behavior.

Apr 06 12:39 PM

[petyaczar:]

Hello Joe,

You do know that ALL companies, including banks, have had strict write down rules on assets. IE when nonperforming assets could be written down, when nonperforming assets could be written off.

They also had rules on performing assets. AND one of these was that performing assets COULD NOT BE WRITTEN OFF or down - as this would enable companies to hide earnings in reserves.

Really!! MArk to Market is beyond stupid, Mark to market got us in trouble in causing the Great Depression of the 1930's, and Mark to MArket enabled the politicians to pull off a Coup deTat of free enterprise system - Much to be soon regretted by most all Americans when they see what the politicians have wrought.

IMO

Apr 06 01:14 PM

[delta 777:]

assets based on home valuation should be based- not on last sale of that particular home- but on current sale of comps in the neighborhood--such realistic valuation for the asset should be in in perfect accord with what the bank can demonstrate it is currently willing and able to loan on purchase of that home to a person with reasonable credit. Such valuation must include neighborhood foreclosure valuations, because these valuations are the current reality ....any competent real estate appraiser can easily come up with accurate valuation based on comps--they do it every day---and banks lend on this basis.
ANY OTHER METHOD IS ONE BIG LIE.


On Apr 06 10:18 AM petyaczar wrote:

> Mark 2 Market should actually be called our for what it is
> Mark to Model where the model is based on the last sale
> Ergo M2M is really mark to lasat sale.
>
> Mark to Market is beyond Stupid. Its a theoretical construct that
> requires a willing owner (Unwilling seller) to mark down his assets
> to the point that a disinterested (unwilling potential buyer) might
> consider buying the asset.
>
> Show me where - in the real world - An willing owner/unwilling seller
> is required to mark down assets to the point where an unwilling buyer
> might consider a purchase of said assets.
>
> Only in Bizarro World. Never confuse accounting with reality. <br/>
>
> Dump Mark to Market as they did in the 1930's when they determined
> Mark to Market contributed greatly to the Great Depression as it
> sets up a cyclical feedback loop, the worse things get, the greater
> the mark downs and so the worse things get.
>
> Destroy Sarbanes/Oaxley, get rid of FASB 157.
> Reinstate Glass Steagall ACT separating commercial and iinvestment
> banks
> Reinstate the uptick rule on short sales
> Up margin requirements on commodities trading to 50%
> GET ALL POLITICIANS out of attempting to run U.S. companies.
> Make it illegal for politicians to interefere with U.S. copmany operations.
>
>
> IMO

Apr 07 03:57 AM

[MarkitWacha:]

Any change in accounting rules, good or bad, increases volatility. That equates to more risk.

More risk means that the P/E multiples will go down, and everyone is penalized.

I vote for more transparency on the balance sheets. Here's an alternative: calculate both, using the mark to model for the reserve requirements. report both, and let the investors know what's happening. It's not that difficult to implement.

Apr 07 09:55 AM

[Northstar10000:]

We voted for change and got the same with a multiple of at least 5.
Still in Iraq
Still bailing out anyone big
Still spending what we don;t have
Still rewarding our friends
Still crooks in Washington
Still have falling house prices
Still have high unemployment
Still have inflation
Still have the same banking policy
Still have falling stocks
Still have falling 401K's
Still have toxic assets
Still have staggering debt
But at least we have change !!!!

Apr 07 08:29 PM