Could Suspending Mark to the Market Accouting Solve The Problem?

by | Feb 24, 2009 | Asset Management

Throwing good money after bad into these banks is not the answer.

Now, I don’t like changing the rules in the middle of the game.  But I still believe the almost-immediate fix for this entire mess is suspending “mark to the market” regulations.

Read this statement from news sources today: Citigroup declined to comment on talks with the government, but in an email said its capital base is very strong, despite $28.5 billion of losses in the last five quarters.

How could Citigroup lose $28 billion — and say they are very strong?
Believe it or not, it is TRUE.

They HAVE to book these losses due to “mark to the market.”  This is really important!  When a competitor has to mark down the value of bonds, mark-to-the-market means you must do the same thing on your books…whether you sell or not!

OK, true, these same banks made profits hand-over-fist when real estate was going up and they leveraged like crazy off it.  So, if you run your business that way, it’s going to be painful…no…near suicidal…when things are bad.

And that’s precisely whats happening now.

Now, a capitalist society says the weak will be extinguished.  OK.

So weak auto stocks should be wiped out.

Weak homebuilders have to go.

Weak retailers, see ya.

But banks provide the grease for the entire economy.  They should NOT be bailed out with cash.

Suspend mark-to-the-market.   Now.