Josh Stern

Mark-to-Market: The Bogeyman of the 1930s Is Back

Most of the negative comments on this article don't accurately grasp the topic it addressing. To be blunt about it, the thesis is not that MTM caused the banks problems. The thesis is that the combination of MTM and lots of banks with problems causes D-E-P-R-E-S-S-I-O-N (or something close to it).

Of course the banks were stupid and their problems were not caused by MTM. But the question is about whether MTM is wise for banks given the possibility that it is causing the banking industry to take down the entire economy with it. Even if the crisis ends, it may be that MTM is not compatible with traditional bank leverage levels of 10-12X and if we want MTM we can only have banks with leverage of 2X, and therefore much higher borrowing costs. That's probably not the right decision for the economy of the future.