Is Everybody Happy?

The mark to market debate doesn’t need to be winner-takes-all. We can create a system that will satisfy the FASB and investors.

Assets and liabilities can both be held at cost on the balance sheet while current market value is disclosed. Investors will get the fair value number they need to determine current shareholder value, and the FASB gets their market value. Maybe we also disclose a weighted average rate and term for bonds, loans and the like. We can even post the margin based on fair value.

Well, maybe the FASB will be happy. The critical piece is that assets need to be held at cost. The balance of the information is simply disclosed.

No matter how fishy mark to market prices may be, there is no mistaking it. They do force real world investment and credit decisions that have painful and unnecessary consequences. When mark-to-market losses reach “stop loss” levels, solid AAA-rated securities are dumped at steep discounts for accounting reasons that are purely contrived.

Good for the guy who buys the assets, of course. Not so good for the guy forced to sell. And the FASB is smug in its thinking that they have done the world a service. Let’s make everyone happy instead.

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