Totffe

Trading the Mark-to-Market Modification (Updated)

I think market to market accounting was a good idea applied in a mindless way, particularly since no one thought through how it might affect the calculation of banks' regulatory capital.
The reason that suspending it may not do any good is that all the damage has already happened. If we do suspend it, are we going to tell financial instituions that they can just write-up the value of their assets based on some other standard? That's equivalent to saying, "yesterday we said you were insolvent, let's pretend today that you aren't." Or, after all this carnage, we would be like Rosanne Rosannadanna: "Never mind".
The one way I could see it working, is that the rules specify some different standard for asset values which is used only for the purpose of calculating capital adequacy for the banks and doesn't apply to general financial statements. That might ease the pressure on banks so they could loan more, without having them write up the assets on their GAAP books--which no one would believe. The danger is that the calculation of capital adequacy would be detached from GAAP accounting and expose the banking system to more "cooking of the books". It is too late to suspend M2M with any credible good coming of it.