Should we listen to these guys?
Those arguing for mark-to-market evaluation of long-term securities that banks and other organizations are holding are doing so primarily on philosophical and moralistic grounds. Invariably they couch the discussion in vague terms of right and wrong. They have yet to present a single argument for mark-to-market that presents any tangible advantage.
This moralizing mind you is coming from members of an accounting profession whose job it is to ensure, in part, that the financial community plays fair. This is the same financial community that just a few weeks ago brought the world’s economy to the brink of disaster.
Why attack the one change that actually helped to stabilize banks and insurance companies and restore credit markets?
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Here is what the Financial Times editorialized about M2M:
“Legislators and regulators fear that marking banks’ assets down to fair-value estimates will trigger automatic actions as capital ratios deteriorate.
But using accounting rules to mislead regulators with inaccurate information is a poor policy.
If capital calculations are based on inaccurate values of assets, the ratios are already lower than they appear.
Banks should provide regulators with the best information about their assets and liabilities and, separately, allow them the flexibility and discretion to adjust capital adequacy ratios based on the economic situation.
Regulators can lower capital ratios during downturns and raise them during good economic times.”
Financial Times, August 17, 2009
Transparency can be accompanied by flexibility… it’s truthfulness that creates confidence in markets….
http://freerisk.org/wiki/index.php/Mark-to-market_accounting