Tuesday, October 07, 2008

Binge Blogging: One Question About Bailout

Why did they eliminate Mark to Market? As far as I understand, by changing this accounting requirement the Emergency Economic Stabilization Act basically ensures far less transparency in banking system. This seems like a bad idea. I am not an economic genius, having only taken one basic course in microeconomics, and would gladly appreciate serious comments and opinions.

Given the sarcastic bastards that consist of 95% of my readership, I doubt we'll see anything useful show up in the comments. My blogging name is freaking Chuckles after all.

7 comments:

Snag said...

Why did they eliminate Mark to Market? As far as I understand, by changing this accounting requirement the Emergency Economic Stabilization Act basically ensures far less transparency in banking system.

You answered your own question.

Stephanie said...

I'll ask my coworkers-- see what they say.

mdh said...

I vote for what Snag said.

Though it must be added, the MtoM rule was faulty, as once the market for selling them dried up, the MtoM value was zero for all the MtoM assets.

What they should have done was voided those contracts as invalid, then cleaned up that mess. It would have removed the mortgages from the contracts they were bundled in, and wouldn't have been that much more expensive in the end... but it would have increased transparency exponentially.

teh l4m3 said...

Mark-to-Market Wahlberg hates unicorns.

porterhouse said...

They gave the SEC the ability to temporarily suspend MtoM because of the current opinion of mortgage back securities (MBS). The current opinion of MBS is that they are toxically radioactive and thus unsaleable. Under MtoM you'd have to price them at or near zero. In reality they do still have value. By suspending MtoM for MBS they can prevent a total devaluation of a particular bank's assets which could trigger a complete sale of said bank's stock and the corresponding avalanche of devaluating assets.

Chuckles said...

mdh, I don't know how well that would have gone over once the money had changed hands. You can't exactly just void or invalidate contracts, despite how stupid the contract or contracting individuals may have been.

Unless you have them declared legally insane.

mdh said...

chuckles, two words can invalidate any contract.

unjust enrichment.