Suspend 'Mark-to-Market' Accounting Rule?
We've noticed some recent chatter about "mark-to-market." That's the 2-year-old accounting rule requiring companies to value an asset for its immediate sale price on the open market.
The rule made sense following Enron, Worldcom and other scandalous debacles. It prevents companies from lying about what certain assets are worth. But now some folks claim the rule goes too far, forcing companies to write down the value of certain assets even though they could end up being worth something down the road.
So why not suspend the rule?
The idea resurfaces with regularity through this crisis. Last night the Fast Money traders talked about it. And this morning our regular trading floor commentator Art Cashin raised it as well. Indeed many folks from time to time argue that Citigroup , Bank of America, and other banks would be a lot better off if they didn't have to immediately write down some of the mortgage-related securities on their books.
As always, we like to get the pulse of our audience. So what do you think?
Why are we even asking this question. Of course the rule should stay. In this situation all cards need to be placed on the table, not kept up the sleeve. —Randy
The government should adopt a rule that is based on a valuation method that is well understood and transparent. Mark to market only works when the market works. —Scott
Leave the rule alone, it is to late to change now. —Derick
How about Mark-to-Median? Define 3 methods of determining the value, perhaps market, original cost and current income production divided by the 10-yr bond yield, and then chose the one in the middle. —Art
Keeping/Removing the Mark-to-Market rule is a lose-lose situation. Keeping the rule results in the furhter crippling of our financial system, while on the other hand removing it all together provides the possiblity of another Enron-like scandal that could cause much more collateral damage. —Trent
Market to market accounting is a cultural necessity, don't touch it. —Esteban
Keep mark to market! How else should assets be valued? Whatever the CEO's think they should be worth? —Margot
Suspend mark to market until the situation is stable, make certain that all necessary changes are made to prevent a reoccurance, then reinstitute a revised mark to market rule. —Tim
Market price does not always represend the fair value. Marked-to-market creates bubble and bust exponentially as all financial institutions use leverage. —YJ
Elimination of the rule is a bad idea. However, when markets do not exist for securities, marking them down to some level slightly above 0 makes no sense. —Atavist
Mark to market accounting is not the problem. The problem is that banks want to hold on to the mortgage backed assets because they think the assets will have future value, instead of selling these bad assets to someone that is willing to buy them. —Dan
Mark to market is appropriate and needed for those assets where the intent of the holder is not to hold it to maturity. —Ali
Keep the rule. Who's to say that there are not other Enrons or Worldcoms out there? And why would we trust the bankers to do the right thing now, after these recent events? — Jeff
We should keep the accounting rule in place; in this market, we need to stick to conservative estimates and financial transparency. —Stuart
Mark to market is the basis for free market capitalism. —Matthew
Mark to market accounting was never a problem when the market was going up. It's only a problem on the way down. —Anthony
This is a cheaper solution than destroying organizations. Mark-to-Market suspension may be limited to tangible assets-like mortgage backed securities, not to any other products. —S.Kapoor
I see no reason why the mark-to-market rules cannot be suspended or eliminated altogether. As usual, the government oversteps its bounds with increased regulation that is unnecessary and detrimental. —Doug
So this means someone will pay me for my house based upon a future higher value? I don't think so. Mark to market is exactly how life works for us all. —Patrick
It is the stupidest rule ever. It is the root cause of the banking crises in this country today. Congress should adopt a rolling mark to market rule. —Cary
Mark to market has to be repealed. It is having unintended consequences costing US taxpayers. The uptick rule also needs addressed. —Mike
he mark-to-market rule was established to enforce honest accounting on public corporations. To suspend it would imply that corporations can be trusted to value assets appropriately. Do any us believe that, banks especially, have earned that trust or will not abuse it in the future? —Adam
Yes, mark-to-market should be suspended, because banks should not be forced to mark to liquidation prices and thereby impair their capital. Hopefully, markets will return more to normal in six months and the rule can be reinstated in a form that makes sense. —Paul
Leave the mark-to-market rule alone. It eliminates the polyanna rose-colored guesstimates of what an asset could be worth. —Mike