http://www.marktomarketdebate.com/2009/02/09/mark-to-market-debate-intro/ Mon, 07 Feb 2011 22:30:36 +0000 hourly 1 http://wordpress.org/?v=3.3.1 http://www.marktomarketdebate.com/2009/02/09/mark-to-market-debate-intro/comment-page-1/#comment-9 Brian Perry Fri, 13 Feb 2009 03:10:42 +0000 http://www.marktomarketdebate.com/?p=503#comment-9 Mark to market is no longer limited to banks. Several corporate credit unions, especially US Central Federal Credit Union, have taken more than $1 billion in OTTI on bonds, now downgraded from AAA and illiquid. This action has jeopardized their capital and the NCUA's insurance fund. As a result of this accounting rule all federally insured credit unions in the U.S. must make up the "loss " this year! The projected average cost for credit unions for the share guarantee is an approximate 48 basis point decline in annual return on assets and a 43 basis point decline in the net worth ratio. The impact on credit unions for the capital infusion to U.S. Central will be an average additional decline in the return on assets of 14 basis points and 13 basis points of net worth. The combination of both actions results in the average credit union absorbing a total 62 basis point decline in the return on assets and a total 56 basis point reduction in the net worth ratio. Suspend this rule now before the entire financial industry melts down. Mark to market is no longer limited to banks. Several corporate credit unions, especially US Central Federal Credit Union, have taken more than $1 billion in OTTI on bonds, now downgraded from AAA and illiquid. This action has jeopardized their capital and the NCUA’s insurance fund. As a result of this accounting rule all federally insured credit unions in the U.S. must make up the “loss ” this year! The projected average cost for credit unions for the share guarantee is an approximate 48 basis point decline in annual return on assets and a 43 basis point decline in the net worth ratio. The impact on credit unions for the capital infusion to U.S. Central will be an average additional decline in the return on assets of 14 basis points and 13 basis points of net worth. The combination of both actions results in the average credit union absorbing a total 62 basis point decline in the return on assets and a total 56 basis point reduction in the net worth ratio. Suspend this rule now before the entire financial industry melts down.

]]> http://www.marktomarketdebate.com/2009/02/09/mark-to-market-debate-intro/comment-page-1/#comment-6 George Darling Wed, 11 Feb 2009 20:28:58 +0000 http://www.marktomarketdebate.com/?p=503#comment-6 DCG has been fighting against Mark to Market Accounting(aka Fair Value Accounting)for over 15 years.The entire concept that FVA provides users of finacial statements with more information and "transparency" is totally misplaced.The right accounting model for financial institutions that do not actively trade their portfolios and earn the majority of their income from their intermediation function(i.e.buying and selling money) is historical cost accounting. FASB is dominated by academics who thrive on theory and have no concept or concerns about the havoc and/or costs they create in the business world.Past failures include,but are not limited to FAS 133,FAS 159 and FAS157.When the ecomony finally gets back on it's feet and a postmortem is done on this crisis,I believe we will find that between 30-50% of all write downs on financial balance sheets will turn out to be accounting write downs that have very limited true economic impact. DCG has been fighting against Mark to Market Accounting(aka Fair Value Accounting)for over 15 years.The entire concept that FVA provides users of finacial statements with more information and “transparency” is totally misplaced.The right accounting model for financial institutions that do not actively trade their portfolios and earn the majority of their income from their intermediation function(i.e.buying and selling money) is historical cost accounting.
FASB is dominated by academics who thrive on theory and have no concept or concerns about the havoc and/or costs they create in the business world.Past failures include,but are not limited to FAS 133,FAS 159 and FAS157.When the ecomony finally gets back on it’s feet and a postmortem is done on this crisis,I believe we will find that between 30-50% of all write downs on financial balance sheets will turn out to be accounting write downs that have very limited true economic impact.

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