Should Mark-to-Market Asset Valuation be Suspended?

Andrew Leonard:

Bipartisan bailout folly, by Andrew Leonard: When a bunch of hardcore House Republican conservatives denounced "mark-to-market" accounting during the debate on the bailout bill on Monday, I was disposed to dismiss the gambit as just another example of free market ideologues carrying water for the corporate sector. But now that I see that suspending "mark-to-market" or "fair value" accounting is also part of an alternative fix-it plan proposed by liberal Democrat Peter DeFazio, D-Ore., and the SEC is making noises about letting financial institutions be more flexible in how they interpret the rule, it is clearly time to take a second look.

And I still think it stinks.

In a nutshell, fair value accounting requires corporations to value their assets according to the current market price. This is great for financial institutions when markets are booming -- they can book all kinds of profits without ever having to actually sell anything. But it is dismal when markets crash, and toxic, risky assets suddenly get priced by the market at rock-bottom levels.

Now that there is essentially no appetite for risky mortgage-backed securities, collateralized debt obligations, and other exotic derivative fare, Wall Street is telling us, hey, how about we suspend the rules, and value all this stuff at the price it would fetch, say, a few years from now, when markets recover and the credit crunch is nothing more than a bad dream?

OK -- there is a legitimate issue buried here. I asked University of Oregon economist Mark Thoma, who keeps track of the state of economic thinking on the relevant issues of the day better than anyone I know, whether there was a basis to the sudden upswell of criticism of mark-to-market accounting. Here's what he told me:

"One way to think about it is that when there is market failure of some sort that is temporary, values will be distorted during that time period and will not reflect the true value at maturity.

...I think the idea is that when the market is in a bubble, marking to market (instead of to fundamentals...) inflates the asset values, and that drives further demand, raises the values, and thus chases price upward.

If the price were marked to fundamentals instead, then the value of the asset wouldn't follow the market up, and that would have a stabilizing effect relative to the mark-to-market approach.

Now they are making the same argument on the other side. The true, fundamental values are different from the values we see today, so, it's like a negative bubble in that sense. Prices chase values down, this becomes self-reinforcing, and makes the problem worse. If prices held at their fundamental values, then there would be more stability."

So, mark-to-market accounting contributes both to credit bubbles, which no one on Wall Street ever complains about because they are too busy raking in the cash, and credit busts, at which point, Something Must Be Done.

There's just one big fat honking problem. If mark-to-market rules are suspended, what replaces them? Surely we don't trust the owners of these risky assets to decide for themselves what they're worth?

From the SEC's "Clarifications on Fair Value Accounting," released Sept. 30:

Can management's internal assumptions (e.g., expected cash flows) be used to measure fair value when relevant market evidence does not exist?

Yes. When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable.

Internal assumptions! Never mind what the market says, we'll just trust you to figure it out for yourselves, boys, because we know you would have no reason to lie about something as immaterial as the state of your own finances!

The attempt by members of both parties to suspend "fair value" accounting is outrageous. Despite Republican claims to the contrary, the United States is not facing a severe financial crisis because of accounting issues. The crisis was created by investors who made huge bets with borrowed money on risky loans and complex derivatives that they did not understand and that blew up in their face when the housing market collapsed. The crisis was created by greedy fools who blithely sold insurance against the possibility of anything bad happening to these securities, without ever dreaming that they might actually have to pay up. The crisis was created by politicians who explicitly made sure that these bond-default insurance policies -- credit default swaps -- were unregulated.

Don't blame the accountants. Listen to them: (Compiled by Calculated Risk.)

"Suspending mark-to-market accounting, in essence, suspends reality." -- Beth Brooke, global vice chair at Ernst & Young LLP, WSJ, Sept 30, 2008

"Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick." -- analyst Dane Mott, JPMorgan Chase & Co., Bloomberg

"Suspending the mark-to-market prices is the most irresponsible thing to do. Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings." -- Diane Garnick, Invesco Ltd., Bloomberg

The just released draft of the Senate bailout bill, a 451-page monstrosity, includes a provision expressly giving the SEC authority to suspend mark-to-market accounting.

Here's something I wrote about this in an email:

Most of the time, it shouldn't make much difference - market prices should reflect fundamental values. So you want to mark to market since we think markets do this better than individuals or models.

But when there is a bubble and prices depart from these fundamental values, it would be better to price at the fundamental values rather than the bubble valuations (so that the price-valuation spiral is avoided). Similarly, if there is a temporary market failure or disruption that will be resolved (information on bad assets revealed for example), then mark to market will get the true values wrong (in the future, but not presently). Similarly, when the price discovery process is not present (i.e. no market exists), perhaps because of a meltdown, then mark to market may not get valuations correct.

But (1) will we know it's a bubble, etc., and if so (2) how to price? Are we sure we have a better measure of true value when we "mark to model"? And, for me, the reason not to do it is (3) it opens the door to accounting fraud, misrepresentations, etc. Whatever potential benefit you might get in bubble times, or other times when prices deviate from long-run fundamental values, is less than the potential cost associated of potential misrepresentations under the "mark to model" methodologies.

Update: More from Robert Waldmann, Barry Ritholtz, Paul Kedrosky, Mathew Yglesias, Justin Fox.

Comments

[kthomas]

I have to agree with Prof. Thoma: This is B.S.

[Anonymous]

Whatever potential benefit you might get in bubble times, or other times when prices deviate from long-run fundamental values, is less than the potential cost associated with "mark to model" methodologies.

Precisely. The SEC authorization should be removed from the bill.

[paine]

who kept the books on the titanic ????

talk about deck chair games

[paine]

these are all attempt to juggle away insolvency

tighten the rules till the buggars scream
for uncle to throw em a life raft
then move in and take over in the name of the people

[esb]

Ritholtz has it right.

If you want to completely eliminate trust, just tell everyone that you make up your balance sheet numbers in whatever manner you wish.

Eliminating trust in institutions is precisely the right thing to do now,

but only if you want the whole thing to fly apart.

[anne]

http://dealbook.blogs.nytimes.com/2008/10/01/buffett-to-invest-3-billion-in-ge/index.html?hp

October 1, 2008

Buffett to Invest $3 Billion in G.E.
By DEALBOOK

The move is the latest investment by the billionaire investor Warren E. Buffett amid the financial clampdown.

[Notice the way in Berkshire which is always valued fundamentally is buying in the billions and buying in cash, through the volatility.]

[anne]

The issue is actually treated differently in several countries, with selected corporations in Germany among other countries preferring to record revenues as though self-insuring, much as Berkshire Hathaway does even though Berkshire marks to market. Buffett always prefers to record fundamental values to understand reserves that are necessary and how to use reserves. Berkshire shares, though I have not looked at price in a few days, have been significantly undervalued, making cash reserves that much more telling even in such a time of financial market volatility and even though Berkshire is an insurer. So Berkshire has been buying and buying with cash rather than stock.

Spanish companies significantly look to fundamental values, and were more cautious as a result as the values of Spanish assets rapidly and artificially increased.

Looking to fundamental values can be a mark of conservatism, so we have Buffett and Banco Santander for instance.

[anne]

John Bogle mentioned the issue of volatility and pricing a few days ago, and the reason to discount artificial price increases while taking advantage of decreases, but that means taking a different attitude to reserves. Buffett recorded immense reserves through the bull market, reserves which are so much more valuable now. Assets were marked to market, but considered fundamentally for use. Goldman Sachs and GE, among other companies, are worth more than paper value now.

[BJ Feng]

Mark Thoma, your quote makes it sound like you support suspending mark-to-market rules in times of turbulence. Your e-mail, however, takes the opposite view. I suppose that the author was asking you if there was a legitimate basis for suspending mark-to-market and you stated there was, you were not giving an opinion on whether mark-to-mark should be suspended. I am correct?

I happen to agree that suspending mark-to-market would likely cause more harm than good. One aspect of mark-to-market is that it exaggerates and amplifies gains and losses. In boom times, those assets might get overpriced, leading the company to book large unrealized gains that will quickly be reversed in down times.

The trick is for management not to be fooled by its own numbers. One of the good "rules" of investing is that you shouldn't count a profit until it's booked, that is your paper gains shouldn't be counted until you sell and lock them in. Of course a company has to obey accounting rules and must book the profit on its books, but management can still treat them as imaginary. That means management must be more cautious even if they are booking huge profits due to mark-to-market. They cannot distribute those unrealized gains to shareholders in the form of increased dividends or buybacks until the gains are realized. This will be very hard to do, analysts will wonder why the company is retaining so much of its earnings. That will hurt the metrics used to judge efficiency like return on equity and return on investment. It will take good, disciplined management to avoid the pitfalls of mark-to-market.

I think there already is a way for banks to suspend mark-to-market. Someone correct me if I'm wrong, but banks can avoid mark-to-market if they hold the securities in their own investment accounts instead of their "for sale" accounts. I believe that non-bank firms can't do this, so it's not really banks that are suffering from mark-to-market though even banks can't abuse this method too much. Analysts and investors closely track the amount held "for investment" and "for sale". Washington Mutual moved a large chunk from "for sale" to "for investment" more than a year ago and that was noted by analysts. Washington Mutual justified those actions by stating that the market prices were so low back then, that it stood to make a substantial amount of money holding them until maturity. Of course that turned out to be wrong, and not many were fooled.

Mark-to-market requires more discipline to manage. I believe managers will make the adjustment after learning the harsh lessons of this downturn. Investors will demand managers who understand.

[anne]

What is worth asking is why Buffett can afford to be so conservative in a relative sense. What was the difference in approach as a financial company, which Berkshire is, with AIG and why the difference and why is Berkshire, which is quite transparent, not more imitated?

[anne]

http://dealbook.blogs.nytimes.com/2008/10/01/buffett-to-invest-3-billion-in-ge/index.html?hp

"Like Goldman, G.E.’s concessions to Mr. Buffett are steep. The perpetual preferred stock carries a dividend of 10 percent, and can be repurchased after three years, at a 10 percent premium. Berkshire Hathaway will also receive warrants to buy $3 billion of common stock at $22.25 within the next five years."

Nice.

[anne]

Notice the GE shares are selling at $24.67, while the warrants are at $22.25 and GE shares are down more than 40% for the year though I would guess not down so much for all that much longer.

[acerimusdux]

We need to increase, not decrease transparency. According to their 6/30 financial statements, Wachovia had $75B in equity. One quarter later they sold the bulk of their operations and assets to Citibank for just over $2B. Is it any wonder markets are reluctant to lend money?

Anyone who thinks allowing more mistating of reality in financial statements is going to increase confidence at this point in time is kidding themselves.

New accounting regulations will finally require disclosure in financial statements of the risk posed by the guarantees behind credit default swaps, as well as enhanced disclosures about the credit risks associated with all derivatives, for periods beginning after November 15, 2008. But, that still means, with many of these firms, that we won't really know what they have on their books until March, 2009, or later.

If taxpayers ae going to pick up any of the tab for these banks, we should insist first on a full and fair public accounting of what it is they are actually holding. Some of these mortgage lenders got into trouble in the first place because of "non-disclosure" loans. Let's not have the government make the same mistake.

My primary concern, going back to the Bear Stearns bailout, and the Fed's unprecendented lending against some of these "troubled" assets, has been whether we really know what any of these things are worth. If assets are truly undervalued, temporarily, due to the need for liquidity, then yes, taxpayers will get their money back. But if the problem is that some of these institutions are insolvent, and are only looking for ways to hide this by continuing to over value assets, then we are only prolonging the pain.

The same applies to the bailout. I understand the argument that the market may be over reacting and now undervaluing some assets, and the cost to taxpayers may turn out to be small. But do we really know this? And how can we know better than the market, what the true fundamentals are, when we aren't even requiring them to be publicly disclosed?

The early judgement of the Fed seems to have been that this was a temporary liquidity problem that could be solved by offering temporary support to these financial institutions. If that initial judgement was incorrect, then the Fed has been applying the wrong medicine. If rather, the financial sector itself has over expanded and become unprofitable, and too highly leveraged, we should instead be directing that economic assistance to the economy generally. The Fed should be expanding non-borrowed reserves, rather than borrowed reserves. And the congress should be directing some of its investment to other areas of the economy that can do a better job of creating jobs and driving economic growth.

[anne]

Transparency is critically important, at least beyond matters that could allow for trader unfairness as a company operates. Read through the Berkshire reports to shareholders and especially the letters of Buffett and notice the repeated emphasis on market and intrinsic company value. Berkshire is repeatedly analyzed by Buffett to be less productive than we find the company has later become. This is not a mask, but a way of tempering decision making within the company.

There are, then, times as this in which the company can be more aggressive than may have been anticipated and there is more happening with closely-held company portfolios that will not be clear to scheduled reporting. What we always know however is financial potential and that is not nearly common enough.

[pgl]

BNA release today on the latest from FASB:

The Financial Accounting Standards Board voted unanimously Oct. 1 to issue proposed fast-track staff guidance on how to assign fair values to the kinds of troubled financial assets at issue in the current credit and banking crisis. The planned FASB staff position on valuing financial assets in an inactive market--to be considered for final vote Oct. 10, in time for companies' third-quarter reporting - would amount to an elaboration of what the board's staff and staff of the Securities and Exchange Commission issued Sept. 30 as a clarification on fair value accounting, as at least two board members suggested at FASB's weekly meeting. Robert Herz, chairman of the accounting board, stressed that work on the guidance was being done so quickly in recognition of “these rather unprecedented times” - a phrase or variation of which he used several times. He also noted “current market conditions,” but did not mention the financial industry bailout bill pending on Capitol Hill. The board plans to center its planned FASB staff position, or FSP, on an illustrative example that would convey how the marketplace-based principles of Statement No. 157, Fair Value Measurements, would be applied in an inactive market.

[paine]

transparency

i suggest some central data base
where all official limited liability
corporate books
are kept
and are open to public viewing 24/7
in real time

like limited liability corprate advertisements are now

how we incentivize the taboo
on a second set of books
sans falsifications

i'll leave to the mechanism builders

[Patrick]

To paraphrase someone from JPMorgan Chase: This is like blaming the doctor for your illness when she diagnoses you with cancer.

I've been thinking about this and I might be talking out of my hat here but here goes anyway: If you compare Black-Scholes option pricing model to CDO pricing models, the big difference is that Black-Scholes does a good job of describing actual behaviour. But the CDO models have no market to be tested against, and even if one existed, I suspect that, due to their complexity, no market participant is going to be able to look at a CDO and say with any certainty "this is worth $X". Since any potential market participants can't get their heads around the value of the things, they just walk away in disgust so it's effectively worth $0.

If this is the case, then would it help to unscramble the egg in some way? Maybe by morphing the derivatives into something simpler that can be understood more easily?

I dunno ... just thinking out loud.

[paine]

pgl
inactive marketing means active imagineering

[paine]

pat
i agree
when reviewing a balance sheet
if its not clear and its an asset
its worthles
if its not clear and its a liability
its prolly worth
more then the last quarters earnings

[macburger]

Similarly, when the price discovery process is not present (i.e. no market exists), perhaps because of a meltdown, then mark to market may not get valuations correct

I think this is why all the hullabaloo about suspending mark-to-market is being raised now.

But that argument is based on the premise that the current values are not right, and the assets are being valued low.

Low compared to what?

The current values are low ONLY when compared to the bubble valuations. How dis those bubble valuations get priced? Why, on mark-to-market, not on DCF or any sane income metrics.

The entire argument for suspending mark-to-market NOW, is an excuse to keep on valuing these junk assets at bubble prices.

See Alan Binder here (April 2008 video, not a knee jerk reaction to today's crisis)

http://www.youtube.com/watch?v=TbhqyO_tQNo
Starting at around minute 40 of this video, Alan Blinder has an discussion of the mark-to-market issue. Blinder’s example is that if the highest bid is $20 and the lowest bid is $60, where do you value the asset? There are legitimate problems that need some attention in how you apply mark-to-market accounting when markets aren’t functioning. But he says “having said that, I know a wrong answer, which is to put it in at face value".

That’s what proponents of ending mark-to-market want to do. They want to say that you can value your assets not at what you could sell them for, but at what you paid for them. Blinder says about the example of the $20/$60 bid/ask spread - “I’m pretty sure $100 is the wrong answer."

[Don]

Well, I think if we do suspend mark to market then earnings for the good years should be restated based on the new rules (and to the maximum extent possible bonuses clawed back) to reflect the new rules.

[dd]

I suggest public release of all publicly traded corporate tax returns.

[anne]

Don:

"Well, I think if we do suspend mark to market then earnings for the good years should be restated based on the new rules (and to the maximum extent possible bonuses clawed back) to reflect the new rules."

This is nicely funny, but intelligent management in Germany and Spain will underplay the good or best years understanding that there are only some many best years possible and what of no so best years? That means paying attention to long term company needs.

Berkshire has never paid a dividend or bought back stock, and seldom uses stock for investment, since Buffett always felt there were better investments possible and cash has almost always been less valuable than Berkshire stock, but Buffett mentioned in passing thinking about a stock buy-back in the late 1990s when Berkshire shares were distinctly undervalued. The mention drove the stock price up, and there was no buy-back because none was needed.

[robertdfeinman]

This is a hidden ploy to save the hedge funds, not the banks.

It's funny how the fundamental axioms of economics get ignored when some rich folks are about to lose money. Things are "worth" whatever someone is willing to for them at that moment.

That they may be "worth" more when they mature is irrelevant, that's why there are time-value-of-money calculations.

Anyone who wants to give me par for my preferreds that are currently selling at 50% of face can email me and we can arrange the deal...

This bill is designed to keep the music playing, at least until after the election, when it will be the Dems problem. Most of the provisions have nothing to do with the real problems. Things aren't being helped by all the commentators who just repeat each other's nonsense.

For example:
Loans are hard to get because banks aren't willing to lend to each other, but if you (the consumer, not a bank) manages to get one then you will find you have to pay a high interest rate.

Translation: the banks get to borrow from the Fed at special rates and then jack up their loan rates and make a big spread and pretend this has something to do with inter-bank transactions. I call BS on the bill and all the justifications for it.

[dd]

Let's see what they tell the IRS about "profits" and "losses" and then do a comparison to their "financial statements."
No need to have a separate public entity collect data. The IRS has it and has access to every scrap underlying the numbers.

[Transparency]

"If mark-to-market rules are suspended, what replaces them? Surely we don't trust the owners of these risky assets to decide for themselves what they're worth?"

You could just list them, and let the market decide for itself. Of course this means that firms with genuine junk on their books will be vaporized. Strong firms would gain market share.

Black box business models are no longer acceptable to the market in the wake of unexpected overnight bankruptcies.

[anne]

New York Times headline of the day:

"Buffett's investments aren't regular stock tips"

[anne]

Or, I suppose the caption should continue, "don't try this at home."

[Julio]

My unique, patented "Mark-to-Need" (tm) method would solve this whole economic mess in a NY minute.

[anne]

Julio:

My unique, patented "Mark-to-Need" (tm) method ....

[Nice.]

[bakho]

TRANSPARENCY!!!!!!!!!!!!!

Shell games are for suckers

TRANSPARENCY!!!!!!!!!!!!!

[acerimusdux]

A big part of this discussion should be what is more useful for typical users of financial statements. Extending this to the Warren Buffett example, Buffett likely wouldn't have made his first million if he weren't good at analyzing financial statements. Of course he goes beyond that, and looks at management, business models, etc. But a big part of what he does starts with understanding the financial statements.

Now, suppose we have assets on the statements valued at "mark to market". I, as user of the statements, am free to make my own judements about how realistic current market prices are. My ability to do so reasonably depends on my access to data about the market generally, such as hitorical market prices, trends, trading volume, and market fundamentals.

In contrast, suppose assets are valued using some other model or internal assessment. My ability to make my own judgements about reasonableness now depends on my access to accurate information about the models used, and internal information or assumptions therein, and my ability to recalulate them based on my own assumptions.

It almost doesn't matter to me what ultimately gets included on the balance sheet or in earnings, as long as the information I need is disclosed. They could record these things at cost or par value for all I care, as long as market value is disclosed in the notes somewhere.

If something like "mark to model" is to be used, it's usefulness really would depend on the models being transparent, being not overly complex, and not being dependent on internal data and assumptions that are not publicly disclosed.

Most of the time, for most users, I think market values are going to be a more accessable and easily understood reference point.

[BJ Feng]

Acerimusdux and others, we cannot have a "fair" accounting of the books without some sort of price discovery mechanism like the proposed auctions. The problem is that we don't know exactly what will happen in the future, will foreclosures soar, stay around the same, or decrease? Without knowing future default rates, we cannot use the discounted income stream model to price a security. We can estimate probabilities and ranges, but that brings risk into the equation and risk also has a price.

RobertFeinman asks, if a security is worth only what someone is willing to pay, how can taxpayers make money by paying market prices, and why wouldn't others buy those securities if they could make money?

Because market prices include a risk premium, that's why someone can pay market prices for stocks or a corporate bond and still make money most of the time. The times when he loses are made up for by the more frequent times when he wins. But what if you can't afford to take risk at this time? What if you need to decrease your risk because you've already taken on too much in retrospect? What if most of the market participants are in the same situation?

Let me ask you, would you put up all of your assets for one game of roulette if you could be the house (assume the other player will only place bets that pay 1:1)? You have a 5.25% advantage, your expected profit is 5.25% of all your assets. Most of you including me would say no, I can't take that risk because it's too much for me. But a person like Warren Buffet or a company like Las Vegas Sands, wouldn't hesitate to play a spin for your net worth.

Well only the Federal government can take such a large bet right now. Unlike corporations or us, the federal government can continue to borrow and doesn't face a margin call or have to put up collateral. They can afford to take that risk, just like Vegas casinos can afford to take bets that you and I can't. This is why the TARP is necessary, we need a buyer with deep pockets, and he is expected to win, just like Vegas casinos are expected to win anytime you make a bet. It's a great business that we wouldn't enter into ourselves thanks to the risk.

[BJ Feng]

"My ability to do so reasonably depends on my access to data about the market generally, such as historical market prices, trends, trading volume, and market fundamentals."

Sorry, but models are what got the firms into trouble in the first place. They used historical market prices, trends, and fashioned worst case scenarios and all that stuff. The assumptions they made were based on that data. Unfortunately, the models couldn't predict something that had NEVER happened before, like the severity of this housing downturn and the speed of the decline. This is what Taleb calls a Black Swan event. It is unpredictable and foreseeable only in retrospect. MEDIAN home prices are down more than 40% in California! This is unprecedented. Homes in Riverside that were bought for $450,000 just two years ago are available for $150,000! What kind of model can factor in something that's never happened before? How do you model that?

This is how we got here, the lenders were reckless in retrospect as well as the exotic debt purchasers. But during the boom, defaults were lower than 2%, IF default rates had continued to be in that range as they were for many many years prior, they were actually getting a good deal. But now that default rates are as high as 25% on some subprime CDO packages, it turns out they made a very very bad purchase.

[bakho]

Ideally they would mark to market and give a level of uncertainty. That would be the best info.

[me]

I have about $100,000 of value gone missing due to mysteriously undervalued mutual funds in my 401(k).

If the government would like to bring me back up to my January 2008 valuation, I'd be glad to put the entire roughly $400,000 sum I had as of then in my 401(k) into ordinary CDs in a couple of my local credit unions for the five years I have left til retirement.

They can make local loans to local people.

$Profit$

And the government can no doubt recoup the value when the fire sale is over and make money on this too.

$$Profit$$

Where do I line up for this?

Fair is fair.

[BJ Feng]

If the level of uncertainty is high, and it is currently, then investors will be too afraid to recapitalize the financial institutions that need more capital.

There is also a great danger for financial institutions to admit how much new capital they need. If they can't get it, then all confidence will evaporate and they will go bust within days. For some companies, they need more capital than can possibly be raised all at one time. That's why some firms like Citigroup go back again and again for more capital. If they said they needed $100 billion in new capital all at once, or admitted to that amount but said they were raising $20 billion at a time, why would someone invest in that first $20 billion offering?

Only by doing what Thain did with Merrill, which was to say they had no more need for capital each and every time, could a firm get enough money. Well of course those who were first in received the worst deal. If they had known there would be other offerings of capital, then they would never have bought the first installment.

Again, this is what the TARP is intended to solve. It allows institutions to get rid of all their bad assets at once, and simultaneously raise the capital they need from both the private sector and government if necessary. Only the government has deep enough pockets to buy all the bad loans and provide the necessary capital to keep firms alive.

[BJ Feng]

Me, I am willing to buy your assets at market value, or at least I will do you the favor of finding someone who will pay market value for your 401k assets. My friends, Mr. Ameritrade, Mr. Scottrade, and my best friend, Mr. Zecco will happily provide you with a buyer for a small fee of $10 or so. Mr. Zecco is so generous that he will offer his services for free, as long as you allow him to borrow $2500 worth of securities overnight so that he can lend them out for money. He will return your $2500 when the market opens and it is insured by the government so there is no risk to you. I can vouch for Mr. Zecco, he's not much of a talker and customer service isn't his strong point, but he will offer a valuable service for free.

[Thomas Esmond Knox]

Shyam Sunder brings wisdom to this topic. Of course, he is only a past President of the American Accountants Association.

[me (the original not snarky imposter)]

From the FT today:

" To suspend further reporting of these to investors and depositors is akin to a student asking for suspension of a report card when a failing grade is coming."

http://www.ft.com/cms/s/0/1453e83e-901b-11dd-9890-0000779fd18c.html

[Ryan]

Isn't the proposed buy out bill essentially using the same principle suspending mark-to-market would have. Instead of valuing assets to a market (that doesn't even exist) the government could just hold them to maturity. So, why not mark the assets as the net present value of the things and be done with it?

[BJ Feng]

No, by using an auction process, you establish what the market price is.

[WM]

This article is total hypocrisy. How is someone's bid of 22 cents on the dollar somehow more objective and reasonable than educated estimates of an asset's cash flow?

Mark-to-market rule defenders lapse into total subjectivism when defending their rule.

No method is intrinsically superior to any other. It all depends on the context and purpose for which the methods are to be used.