tuj

Obama and McCain Don't Understand the Markets

Ok, if you're not going to MTM, how are you going to mark assets? By the company's 'good faith'? Yeah..... You make a good point that when liquidity dries up or markets get irrational, the instrument's mark goes to zero, when really, the underlying is almost certainly something greater than that. However this wouldn't be an issue if these companies hadn't heavily leveraged into many of these positions, which is the real reason MTM accounting is killing them; their constant need to re-capitalize.

How do you fix it? Well first off, no red-blooded capitalist would oppose mark-to-market accounting; after all, that is indeed the *just* price of the time, and the investors (owners) have a right to know the value of their assets. As for SOX, yes it costs money and time to comply with, but there was a reason it was passed you know...a failureof clarity of books (Enron/Arthur Anderson).

Oh yeah, you do recall that MTM accounting allowed Enron to show millions in unrealized profits (marked against their optimistic curves in very illiquid markets)? It actually worked out quite well for a lot of people....until it didn't.

Besides, the real problem is that banks assumed real estate would always go up, and decided to extend credit to anyone in exotic loans, packaged in ways that no risk model could reasonably model, enhanced by various credit insurances, and ultimately interweaving a great number of counterparties in a house of cards that no one could correctly understand (after all, there were no histories of default profiles for these loans of various types).