FASB Votes To Relax Mark-to-Market Rules

Discussion in 'Economy' started by Terral, Apr 2, 2009.

  1. Terral
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    Terral Terral Corp CEO

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    Greetings to All:

    TheStreet.com/Story

    This ruling is nothing more than a SHAM allowing banks to create 'two' sets of books and assign any value to their assets that makes good sense 'to them.' The fact that these guys are even considering abandonment of the mark-to-market valuation practices means there is definitely something WRONG with the market itself, which should represent a big red flag for anyone on the receiving end of these transactions. We are still looking at 10,000 foreclosures every day (story and 20,000 lose their jobs) and the 600,000 unemployment numbers are transitioning to 700,000 every month (story); which means no bottom to the housing market is in sight (story).

    These rulings amount to a license for bankers to cook the books in attempts to make their balance sheets have a better appearance, while at the same time they look for unsuspecting victims to assume liability for their past mistakes . . .

    Robert J. Shiller Knows His Stuff

    GL,

    Terral
     
    Last edited: Apr 2, 2009
  2. editec
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    editec Mr. Forgot-it-All

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    Terral,

    You seem smart enough to me to be able to intuit that the whole banking system has been predicated on a scam for so long that they cannot even imagine running things without cooked books.

    THIS period in our economy is the IDEAL time to radically change things more in align with what people like me want, and with what libertarians want too.

    They won't do that, though because if they do then they must give up all the benefits this crooked monetary system has given them.
     
  3. Terral
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    Terral Terral Corp CEO

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    [FONT=&quot]Hi Editec:

    If you are referring to the unconstitutional Federal Reserve System central bank, that needs to be eliminated, then we agree:

    [ame="http://www.youtube.com/watch?v=Xeb2VnI7S4U"]Ron Paul Knows[/ame]

    Abandonment of mark-to-market valuation is one step 'away' from allowing the 'market to operate,' because the fundamentals of the market ARE BROKEN. The Treasury and Congress and the FED are as incapable of 'pricing' these toxic/illiquid assets as the banks, because the FED-created housing bubble has burst and nobody knows how to locate the housing BOTTOM. Those of you who did listen to Robert J. Shiller (the video link again) already realize that housing prices are only half way down to the bottom having lost 25 percent.

    To give you an idea of what this means: My mother put 50,000 dollars down on her house just three years ago and must refinance her loan, but the bank informed her that her house is now worth 40,000 dollars LESS than the loan amount! That means she must caught up 40,000 new dollars to refinance her mortgage 'and' the house price will definitely continue going DOWN. Changing the valuation rules will change nothing about the fair market price that buyers in her area 'are willing to pay,' so all of this hype is nothing more than a SCAM where bankers are trying to dump their depreciating assets on somebody else for more than the fair market value.

    The credit freeze has everything to do with the percentage of households underwater on their mortgage, because people must sell their home before buying a new one. Allowing the banks to engage in price fixing is not going to create one JOB and is not going to stop the 10,000 foreclosures that will happen today, tomorrow and the next day, so on and so forth; which means the number of distressed properties on the open market is only going to INCREASE 'and' bring the values of all the houses in the neighborhood DOWN.

    TheStreet.com came out with "Today's Outrage" that addresses this "Mark to Market's Fictional Failure:"

    Today's Outrage
    [/FONT]

    [FONT=&quot]The key question is "How do you decide what an asset might be worth when market values are flitting around like a bat with no radar?" The answer is that "You do not." Period. Taking over a distressed property amid escalating unemployment and rising foreclosures will see more and more investors stuck with properties in a deflationary market where values are going down into the ground. Since nobody is trying to slow down the Outsourcing of JOBS and the importation of Foreign Nationals (legal and illegal), then the U.S. Consumer will continue to see purchasing power dwindle, which means fewer and fewer potential buyers willing to pay a 'fair market price' for your home.

    The Financial Accounting Standards Board is voting to remove transparency from the valuation process that will only turn investors away in a deflationary market where they can pick up the same property next quarter for a lower price. The banks are actually shooting themselves in the foot, but the day traders have yet to realize that all of this is bad news for the U.S. Economy heading for eventual collapse.
    [/FONT]

    [FONT=&quot]My two cents,[/FONT]

    [FONT=&quot]Terral [/FONT]
     
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    Last edited: Apr 2, 2009
  4. garyd
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    garyd Senior Member

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    Mark to market is perfectly fine for commodities that are traded hourly and for which the price is not geographically dependant. For real estate for which the value is almost wholly dependent on geographical location it is a disaster, simply because it compels the institution to capitalize losses well before they need to and often even before said loss actually happens.

    As an example let us say we have a gentlemen who is paying his $1000 dollar a month mortgage payment on his 300k home on time everytime. The housing market takes a down turn in his neighborhood for whatever reason and his 300k home is suddenly worth only 250k. As long as the home is not sold this 50k loss is essentially valueless and the property in question is generating the exact same amount of revenue it has always generated for me. 5 years down the road the housing market turns around and the property is now worth 350k on the open market. Under mark to market I have to show on my books each of these changes when in fact none of those changes ever had any affect on my earnings or profitability.
     
  5. Toro
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    Toro Diamond Member

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    I used to support mark to market but have come to the conclusion that it was a bad idea. It is too easy to wreck the financial system with it. IMO, it has turned into a disaster.

    Mark-to-Market Accounting: Shooting Ourselves in the Foot - Brief Analysis #648
     
  6. garyd
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    garyd Senior Member

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    Exactly sir.
     
  7. editec
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    editec Mr. Forgot-it-All

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    They're carrying assets which have an unknown value and lending based on multiples of that unknown value.

    Oh, yeah, there's good solid banking principles in action.

    Now anyone who has been FORCED to sell has had NO CHOICE but to accept that the price of real estate has declined, but heaven forbid we force the bankers to suffer the sling and allows of the real estate market, eh?

    They're too special. They can't be hurt because they're too important to the economy to let go down.

    Hang 'em! Shut the forking banks down, strip them of their assets and then just hang the bastards.
     
    Last edited: Apr 4, 2009
  8. Terral
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    Terral Terral Corp CEO

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    Hi Gary:

    We disagree. We are talking about real estate properties that in many cases have been abandoned and oftentimes vandalized with some houses striped of electrical wiring and anything people can sell for scrap. The US Census Bureau reports that the USA currently has 19 million empty homes (story) that the banks are currently trying to decide how to unload on ‘new money’ investors. The ‘loss’ happened when the bank handed over the 300,000 dollars to the original ‘seller,’ because the buyer has headed for the cotton-picking hills! The bank is already out the 300,000 dollars and is trying to ‘talk up’ the value of their distressed property that is losing value with every passing day, because another 10,000 foreclosed properties are trying to hit the market EVERY DAMN DAY. Gary is trying to give banks a license to create a ‘second’ set of books for the results of their fantasy valuation trickery, because the housing market fundamentals are BROKEN. Period.

    Your example has nothing to do with the elimination of mark-to-market valuation methods one way or the other, because this is no distressed property falling under the ‘troubled/toxic/illiquid asset’ umbrella at all. The gentleman in your example is making his payments on time and there is no distressed property to unload on the open market for any valuation procedures to become a necessity. However, when your gentleman’s loan balloons and the ‘new value’ is less than the mortgage value, then the bank will require him to cough up the difference before issuing the new loan and you can take that the bank. The reason that people are racing to refinance right now is because the value of their homes is ‘depreciating’ and they are trying to refinance before going under water . . .

    No. Five years from now the bottom has fallen out of the housing market and your 300,000-dollar home is now worth 98,000 bucks on the open market and your gentleman has to decide when enough is enough. Basing ‘current market value’ upon ‘your’ happy expectations for the market has nothing to do with the ‘actual price’ that buyers in your area ‘are’ willing to pay ‘today.’ The reason mark-to-market valuation is the ONLY real estate method you should trust is because somebody is trying to saddle you with ‘their’ troubled asset and ‘you’ will be the one left holding the ‘bad paper’ bag. Deviating away from mark-to-market valuation spells trouble for all the banks, because the smart money will require a valuation method that ‘is’ connected to the real market and the banks will end up in the precarious position of retaining troubled assets in a ‘deflationary market’ where values are going into the toilet. The banks are sitting in quicksand and refusing to liquidate these troubled assets is only going to make the ‘hard landing’ that much harder down the road. Watch and see . . .
    You will not be singing this tune when your current buyers go too far underwater, and abandon the properties, and you are forced to find a real buyer in the real market unwilling to buy into your fantasy valuations on what might be . . .

    Marking house prices to-market is the only game in town, because everything you own is worth whatever a real buyer ‘is’ willing to pay on any given day. Of course that number is meaningless if you intend on holding that asset forever and ever, but then you needed no valuation method in the first place . . .

    GL,

    Terral
     
    Last edited: Apr 4, 2009
  9. garyd
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    garyd Senior Member

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    Terral 99% of homes aren't toxic. the problem with Mark to market is it tends to magnify such problems by compelling people to treat all homes the same regardless of actual value.

    Marking house prices to-market is the only game in town, because everything you own is worth whatever a real buyer ‘is’ willing to pay on any given day. Of course that number is meaningless if you intend on holding that asset forever and ever, but then you needed no valuation method in the first place . . .

    The problem with real estate is that you have no idea what that price is until you actually try to sell it.

    The same house in Oklahoma sells for far less than a similar home in located in So. Cal.
     
  10. wimpy77
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    wimpy77 Member

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    i have a question that i have been wondering. doesn't the change in mark to market basically kill geithner's bad assets plan? i mean aren't the banks gonna want to hold on to those assets instead of selling them?
     

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