Randy Miller

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

What if one of my assets was a million barrels of oil? In July of 2007, that oil was worth around $60 million, July of 2008, $140 million, and today it is worth $40 million. Was the $80 million increase a profit? Was the $100 million a loss, because I had to write down the value of that asset?

The value of mortgage backed securities was overstated two years ago, understated today, but the economic value of my house is the same as it was 15 years ago, 10 years ago, and five years ago.

Mark to market is one tool of many, with the objective of preventing fraudulent accounting. Perhaps the problem rests with the people looking at the numbers, people who thought housing in some markets could keep going up 10 percent every year, people who thought commodity prices could keep going up and up, and so on.

So much of valuation is blue sky, based on the psychology of the moment. Willing buyer, willing seller. Reluctant buyer, distressed seller is not a true market for valuation purposes, and I believe the FASB standards factor that in.

We do not need excessive regulation, people filling out an endless pile of forms. WE DO NEED RULES, to keep honest people honest, and to keep dishonest people reluctant to cheat.