Friday, March 13, 2009

Mark To Market Madness

Many performing assets must be marked as nonperforming under the current standards. Asinine, but true. How can performing loans be considered defaulted-on? What kind of true depiction of a company's business is that?

There is a deep and wide gulf of knowledge here. Goldman Sachs, a "merchant" of business, should utilize mark to market. It does not intend to hold assets for five or ten years, only the short run.

A commercial bank intends to hold on to assets for a minimum of five to ten years. If many assets go bad, it has to mark those assets down, but it has the ability to work them out over time if given the chance.

So it makes no sense to mark all assets down on the price of the ones that are foreclosed and sent packing. Call that "mark to desperation," or "mark to fire sale."

Similarly, if a bank owns some CDOs and they are performing for the most part, the agencies shouldn't take them down as if they are all underperforming, but that is happening, too.

If putting all of the commercial banks into receivorship is the goal - just keep doing what you are doing. Bank of America, Wells Fargo, JPMorgan -- they can't survive. They are all too alike.

If that's the goal, state it. Let's get started.

But I disagree with that goal and disagree with the depiction of their books of business as if they are Goldman Sachs.

That's just unintelligent, counterproductive, and truly inaccurate, to boot.

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