ccerenz2

Nixing 'Mark to Market' Won't Solve the Problem

Why are they revising mark to market accounting?
While mark to market works fine in a market that is stable, it works terribly in a market that is unstable. It forces banks to value and sell assets at the lowest sales prices conducted by their weakest competitors. Given they too are then forced to sell, it puts artificial downward pressure on the asset. The potential buyers also know this, so they sit back and wait for an even lower price before they agree to a deal. This continues and before you know it, mortgage backed securities are selling for .22 on the dollar. It's an artificial situation being caused by the rule. It doesn't relieve the problems, but does relieve the critical nature of this crisis.
Our banks have faced crisis before, but never with the mark to market rule. They survived previously, but won't if we continue with current law.