Re: How important is mark to market?

On Mon, 6 Apr 2009 09:01:46 +0100, "DVH" <dvh@xxxxxxxxxxxx> wrote:


"abelard" <abelard3@xxxxxxxxxxx> wrote in message
news:iqcit4ts0oq1d864vihph5ce6nohfheld3@xxxxxxxxxx
On Sun, 5 Apr 2009 23:34:24 +0100, "DVH" <dvh@xxxxxxxxxxxx> wrote:

Or at least, how important was it in the US until they relaxed the rule?

An excerpt from commentary titled the Mark-to-Market Myth:

"1) Most bank assets are not marked to market to begin with, and half of
the
ones that are marked to market are the type that don't affect the income
statement.

2) Marking assets to market had only a very small impact on bank capital
through September 2008.

it was only introduced (phased in?) in late 2007....

3) The bank failures of 2008, including Washington Mutual, were not caused
by marking assets to market (increasing loan loss provisions were a bigger
culprit). In each case, stock prices started falling before the banks took
writedowns, implying that investors already knew something was fishy
before
the accountants did anything."

http://baselinescenario.com/2009/04/02/the-mark-to-market-myth/

a quick scan of the item suggests the writer is not exactly sharp....

in previous downturns previous methods of accounting allowed
banks....supported by governments inflating....allowed the banks
to trade through the problems....

the underlying hammer blow was clearly the fannies....

Not sure what you mean by "underlying hammer blow"

the thing that triggered the problems in the usa.....
the thing that first aggravated the turn down in the usa....

i have no great evidence to guess that the turn down would not have
occurred then (or maybe a bit later in the usa)....
the fannie debacle was long foreseen as a problem by the fed and
by the republicans...
the usa also has surplus housing stock...it also has an embarrassing
trade imbalance with the m.e and china....
then m2m is perfectly designed to further aggravate the mix...

so, it's a cascade...a landslip waiting to happen...and is at least
in part, self inflicted (as with most human folly)

(and to a
lesser extent the sub-prime loans in the uk)

but anyone realises markets do go through boom and bust (unless
you're a complete brown the clown of course)

imv there has been a grave lack of thinking through the consequences
of m2m
there is the positive feedback i've mentioned several times already
and the effects of that on money supply (to loan) must be
difficult to judge easily....
how can you return to 'normal' lending when so fundamental an
accounting change....and without that, how does the market return
to the (old) normal

Do you want it to return to the old normal?

the old situation was at least workable....
at the very least i'd rather it were phased in with more caution....
and i regard positive feedbacks with considerable suspicion,
and even fear....

i'm a pragmatist...i want systems that work....
i'm not even sure that m2m can work sanely/effectively!
i've yet to mull the full consequences of m2m...quite apart
from the dangerous new positive feedback, i fear/suspect it may
fundamentally disturb the fluent functioning of the money supply

regards

--
web site at www.abelard.org - news comment service, logic, economics
energy, education, politics, etc 1,552,396 document calls in year past
--------------------------------------------------------------------------------
all that is necessary for [] walk quietly and carry
the triumph of evil is that [] a big stick.
good people do nothing [] trust actions not words
only when it's funny -- roger rabbit
--------------------------------------------------------------------------------
.

Loading