market to market accounting

its not fudging the books. right now a business has to write down a loss before they take it. getting rid market to market would actually help things especially financials
 
its not fudging the books. right now a business has to write down a loss before they take it. getting rid market to market would actually help things especially financials
I don't get it. How is it beneficial to anyone but the bank to pretend that something worth 50,000 is worth 100,000? Isn't false accounting part of what got us into the current situation?
 
Hi Ravi with Tech_Esq mentioned:

its not fudging the books. right now a business has to write down a loss before they take it. getting rid market to market would actually help things especially financials
I don't get it. How is it beneficial to anyone but the bank to pretend that something worth 50,000 is worth 100,000? Isn't false accounting part of what got us into the current situation?

Ravi is on the right track to seeing the fraud associated with eliminating mark-to-market valuation methods from the ‘distressed property appraisal’ equation. Tech_Esq mentioned that the ‘experts’ seem to think using a 5-year average valuation would be much better than using mark-to-market in Post #18, but that is Washington D.C. Lobbyist talk preparing We The People for a royal screwing if anything like that is implemented during this Mortgage/Foreclosure/Financial Crisis. Take a look again at the chart showing the recent 2003 – 2007 Housing Bubble (here) to realize that going back five years will give us a much-inflated value with no basis in Market Reality whatsoever. Can anyone here tell us just how far down the house prices will tumble in the current Deflationary Housing Market where unemployment is increasing and home prices are going south? :0)

These lunatics in Washington D.C. are deciding among themselves just how much more taxpayer money to hand over to the banks to bridge the gap between the original mortgage amount ALREADY THROWN AWAY ‘and’ the ‘fair market value’ that these distressed properties can bring on the real Open Market today. These government officials are trying to find some way to remove these ‘toxic assets’ from the bank balance sheets where We The People are left holding the ‘bad paper’ bag. The problem is that the ‘fair market value’ of these distressed properties CONTINUES TO GO DOWN, which means the real value of their mortgage-backed securities portfolios is also GOING DOWN with every passing month and every passing quarter. The government is dumping trillions and trillions of taxpayer dollars down a bottomless ‘debt’ hole and now they are trying to figure out a way to cover their stupid behinds for being suckered into this stupidity in the first place.

Throwing away the mark-to-market valuation methods will only work to lower the credibility of these retards in Washington D.C. ‘and’ the banks ‘and’ the insurance companies like AIG who stupidly insured the bursting housing bubble in the first place. The Bush Administration and now the Obama Administration and both houses of Congress have allowed far too much OUTSOURCING of JOBS and far too many Foreign Nationals to ‘displace’ far too many ‘legal’ U.S. workers from identities and JOBS and now the banks left holding the bad paper bag must pay the piper. Period. Ravi is right and two wrongs do not equal one right and the U.S. Economy is IMPLODING right now no matter what anyone says or does in Washington D.C. or anywhere else . . .

GL,

Terral
 

If the banks have more capital than they did a year ago...why are so many of them insolvent?

From what I understand they are already not using mark to market for valuing their assets...and that is the only thing that is keeping them from declaring bankruptcy.

How does valuing something at market value boost the banks capital, as Forbes claims?
 
I used to support m2m but have changed my mind. I think it is contributing to the downward spiral in the financial system.
How so?

Banks have been effectively insolvent in the past. Too many times, in fact (and disturbingly). Banks were effectively insolvent after the Latin American debt defaults in the early 80s and again in the early 90s after the last real estate boom and the S&L debacle. Many banks went under but for many banks, book value was not written down. This allowed banks to replenish their capital over time by borrowing from the Fed for cheap, i.e. 3% and buying higher yielding Treasury bonds, i.e. 8%, earning a spread of 5%.

Nowadays, banks do not have the option, or at least to the same extent they once had. Now, if an asset is marked to market, and the asset is written down, they have to raise capital. But if you knew that a bank would have to raise capital and dilute your holdings, why would you own a bank stock? So investors sell their stock, driving the price down, which means the company has to raise even more stock to raise the same amount of capital, which dilutes existing shareholders even more, which means the company has to raise even more stock, and so on, until the share capital is essentially destroyed.

This is what is happening in the financial system today as a negative downward spiral has engulfed the stocks, and is a big reason why stocks keep going down every day.
 
Okay.

But what if the banks need to pay off their liabilities? If their assets are artificially valued they quite possibly couldn't do it without the Federal Government stepping in...and depending on the size of the bank not even then.
 
Okay.

But what if the banks need to pay off their liabilities? If their assets are artificially valued they quite possibly couldn't do it without the Federal Government stepping in...and depending on the size of the bank not even then.

If the banks truly cannot pay off their liabilities over a given period of time, they are truly insolvent. However, if they are caught in a death spiral - whereby they have to issue equity to cover losses, which causes the equity to fall even further, meaning they have to issue even more equity, and they fall even further, and so on - then allowing a bank to repair itself over time is a better solution.
 
I used to support m2m but have changed my mind. I think it is contributing to the downward spiral in the financial system.
How so?

Banks have been effectively insolvent in the past. Too many times, in fact (and disturbingly). Banks were effectively insolvent after the Latin American debt defaults in the early 80s and again in the early 90s after the last real estate boom and the S&L debacle. Many banks went under but for many banks, book value was not written down. This allowed banks to replenish their capital over time by borrowing from the Fed for cheap, i.e. 3% and buying higher yielding Treasury bonds, i.e. 8%, earning a spread of 5%.

Nowadays, banks do not have the option, or at least to the same extent they once had. Now, if an asset is marked to market, and the asset is written down, they have to raise capital. But if you knew that a bank would have to raise capital and dilute your holdings, why would you own a bank stock? So investors sell their stock, driving the price down, which means the company has to raise even more stock to raise the same amount of capital, which dilutes existing shareholders even more, which means the company has to raise even more stock, and so on, until the share capital is essentially destroyed.

This is what is happening in the financial system today as a negative downward spiral has engulfed the stocks, and is a big reason why stocks keep going down every day.

That, plus the elimination of the uptick rule. Even I can realize the positive value of that rule. The shorters are literally sinking this market into oblivion, and they'll be the first ones to scoop up the cheapest prices when they decide to quit shorting and go long again for the ride up. In my opinion, the whole thing is being calculated by some big names. Who, I couldn't really tell you but I could venture some guesses.
 
that was cramers outrage today the uptick rule, but isn't the sec the only people that could change the rule.
 

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