Notehound2

Mark to Market and the Crisis of Confidence

Mark-to-Market Accounting run amok is causing the death of our financial markets.
Mark to market accounting should be merged with "amortization" concepts when dealing with assets that have a measurable anticipated life span. In other words, if an asset (pool) is expected to have an economic lifespan of 10 quarters, then when its market value increases or decreases by $1,000,000, its book value shoud only be marked up or down by 10%, or $100,000, of the total change during the current quarter. Then, as the expected life span expands or contracts, adjustments to "true up" the previous quarters' markings can be made as a separate line item.
Having lost a job at a very profitable company that was brought down when FAS 157 was implemented a few years ago, I have personal experience with the havoc wreaked by mark to market accounting.
Mark to Market Accounting exaggerates gains on the way up and it exaggerates losses on the way down.
When combined with the ratings industry it is death to any valid measurement of "worth" when dealing with any long-term asset that, when held to maturity, would provide a perfectly respectable average yield over time.
MARK TO MARKET ACCOUNTING RULES HAVE MADE ALL LONG-TERM FINANCIAL ASSETS INTO UNMARKETABLE "HOT POTATOES" AND FAS 157 SHOULD BE BANNED FROM ANY CIVILIZED SOCIETY.