Smarty_Pants

Mark to Market Accounting: Used with Flexibility, It's a Good Thing

It seems to me that we've nearly reached the point where application of mark to market in the financial sector is nearly an exercise in futility.

Isn't the goal of mark to market to provide shareholders (or potential shareholders) an honest idea of the current financial state and potential risks that the company's stock or bonds entail?

In theory, this information will be reflected in the share or bond price, changing as updates to the asset values changes, and warning alert shareholders or bondholders to sell when the risk is too highfor their liking.

However, when the gub'mint sloshes buckets of money to the worst offenders against sane corporate practices to "save" the system, then what's the point of marking to market? No matter how far underwater JP Morgan or Goldman Sachs may be or might get, they won't be allowed to fail. Ever. It's a proven fact.

With the passage of TARP the rules have changed. 'Investing' in the financial sector is no longer an option, it has turned into a gambling hall where you are making a short term bet on future price action without regard for underlying fundamentals. Everyone knows that the stock won't go to zero, so why not buy the dips and hope to sell the rallies?

That's just my two cents on "mark to market". Unless and until the big Wall Street firms are held to the same standard as Main Street mom and pop firms are then the reality of mark to market is that it's all for show.