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Mark-to-Market Accounting: More Rules

Rick,

You stopped one recommendation short in your reading of the SEC fair value study. Recommendation #6 states: "Accounting standards should continue to be established to meet the needs of investors." The second bullet under that recommendation states: "Most appear to agree that fair value measurements provide useful information to investors, meeting their information needs. Finally, the last bullet states: "General-purpose financial reporting should not be revised to meet the needs of other parties if doing so would compromise the needs of investors." What troubles me most about your initial blog and your continuing comments is that you are repeating the bank lobbyist mantra that that there is a significant problem with fair values causing financial assets to be understated because of illiquidity in the markets. That may have occurred in some limited circumstances, but there is simply no evidence that the occurrence is a common one. The SEC study makes that clear. As one example, the study states that "over 90% of investments marked-to-market are valued based on observable inputs, such as market quotes obtained from active markets." If you dig into this lobbyist orchestrated controversy a little more, you will find that the great weight of evidence indicates that many banks and insurance companies are holding significant amounts of financial assets that are overstated in value (not understated as you suggest) and the lobbyists for those industries are working hard trying to obtain changes to accounting standards that will help the industry avoid having to report that economic truth to market participants. If they win; investors, the capital markets, and the economy, lose.