Bill Zielinski

Don't Blame Mark-to-Market for This Crisis

If you value assets based on market values, at least you have a value that makes sense economically today; it's valued at what a buyer would pay. The problem is that asset values can change significantly,(based on supply and demand, etc) without implying that the held to maturity value is impaired. This is why insurance companies holding high rated long term assets do not do mark to market adjustments. Flowing to the income statement mark to market adjustments every quarter would significantly distort the real operational results without being based on an underlying economic reality. The MTM question gets very complex based on the type of asset, it's credit rating and years to maturity.
In the case of banks that are holding huge amounts of assets on their books at cost, when the market value is pennies on the dollar and recovery is doubtful, creates major doubts about the real strength of the bank's capital levels. MTM reflects the economic substance of a permanently impaired asset and allows for an accurate balance sheet and income statement.
To keep virtually worthless assets on the books and not mark them to market is just a shell game. The bank pretends to hold assets worth something and investors are supposed to pretend that the bank is sound?
How does this solve anything?
The writer makes good points and is well justified in roasting Forbes ridiculous article.