Thursday, February 5, 2009

More On Mark-To-Market

Mark to market is the ultimate example of pricing fur coats in August. Fur coats in August should never cause this kind of catastrophic weakness in our financial system. Nobody wants to trade these things in this real estate environment, that doesn't means it will last forever. The unintended consequences of this accounting regulation represent the biggest blunder of our economic generation. Bank balance sheets should never be tied to these illiquid assets on a quarterly basis. Even the Accounting Board agrees with me. In their findings published last October they agreed that the market had become inactive and that an income approach to valuation would be much more representative of fair value than the market approach. At least 75% of these things are performing just fine. A repeal of m2m means everything for the stock market.

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