Comments on: The Mark-to-Market Myth

By: Böcker om finanskrisen II: Cooper « Ekonomistas

Böcker om finanskrisen II: Cooper « Ekonomistas — Tue, 21 Apr 2009 06:31:39 +0000

[...] betydelsen av dessa regler för skapandet av positiva och negativa prisspiraler (se även här). Samtidigt får jag intrycket att författaren egentligen är övertygad om att de finansiella [...]

By: More on Citi’s earning manipulation « Stocks Go Up. Stocks Go Down.

More on Citi’s earning manipulation « Stocks Go Up. Stocks Go Down. — Sun, 19 Apr 2009 21:07:11 +0000

[...] to be classified as other-than-temporary (and therefore affect the income statement) thanks to FASB; $2.5 billion in “profits” because of the fall in the value of Citigroup’s own debt. The [...]

By: New Day, New Bank, Worse Story « The Baseline Scenario

New Day, New Bank, Worse Story « The Baseline Scenario — Sun, 19 Apr 2009 18:44:45 +0000

[...] have to be classified as other-than-temporary (and therefore affect the income statement) thanks to FASB; $2.5 billion in “profits” because of the fall in the value of Citigroup’s own [...]

By: Marking to Markets. « Rortybomb

Marking to Markets. « Rortybomb — Fri, 17 Apr 2009 15:05:57 +0000

[...] are two good summaries of why it is worthwhile to keep marking-to-market: from CAP and from Baseline Scenario. Mark-to-market versus mark-to-model is an incredibly esoteric and dorky thing to talk about, even [...]

By: Econ Links II « Random Musings of a Deranged Mind

Econ Links II « Random Musings of a Deranged Mind — Sat, 11 Apr 2009 00:36:04 +0000

[...] http://baselinescenario.com/2009/04/02/the-mark-to-market-myth/ [...]

By: for your info

for your info — Fri, 10 Apr 2009 02:44:23 +0000

at least through 2007, US Morgan was prevented from supporting “religious’ based products. But, that didn’t prevent them from dedicating full efforts for SCF products in their Dubai branch.

By: thevoice@voicedup.com

thevoice@voicedup.com — Thu, 09 Apr 2009 19:34:01 +0000

If not for the issuance of FAS157 effective November 15,2007 by the SEC and FASB . For those unaware fair value was redefined. This rule requires banks to mark to market instead of mark to model as previously calculated since the inception of FASB. Pre FAS 157 when an investment vehicle trades thinly (such as mortgage backed securities) the underlying holder of the investment is allowed to use its own assumptions on fair value, today it must be valued based on what it can be sold at in the open market. If I’m a bank and expecting to receive future cash flow of $1000 a month over the next 30 years on an loan of 200K for a total payment of 360k, based on todays fair market value and panic in the market the underlying issue has been written down to 40 cents on the dollar or approximately 80k and this is a conservative figure.

In the current market it would not be wise to sell any of the troubled assets based on fair market valuation as there are not enough buyers which drastically reduces the price of the asset.

By: kiko

kiko — Wed, 08 Apr 2009 22:53:01 +0000

Can anybody help me? I couldn’t find any restriction in PPIP for a bank willing to offer an asset to auction being forbidden to buy shares from the fund willing to buy those assets.

Am I blind or only bad informed?

By: dumb student

dumb student — Wed, 08 Apr 2009 13:49:29 +0000

I like update at the end of the post. I also wonder about further interaction between mark-to-model and PPIP. As Stiglitz’ recent op-ed pointed out, the PPIP auctions will be pricing options on the assets, not the assets themselves. And due to the problem of adverse selection, banks may say “I sold my really toxic assets for $X. I still have some mildly toxic assets that I think are twice as good as the really toxic assets I sold, which I will value at $2x.” The fact that X is an option value will make the picture even less clear.

By: Baseline Scenario, April 7, 2009 « The Baseline Scenario

Baseline Scenario, April 7, 2009 « The Baseline Scenario — Tue, 07 Apr 2009 12:47:31 +0000

[...] caved in to banking industry pressure (transmitted by the House Financial Services Committee) and relaxed the rules implementing fair value accounting. In some circumstances, financial institutions will find it [...]

By: Mark-to-market: the good, the bad, and the ugly « ˈā-kwə-tēs

Mark-to-market: the good, the bad, and the ugly « ˈā-kwə-tēs — Mon, 06 Apr 2009 19:24:26 +0000

[...] Other bads of this mark to market issue have been discussed by Baseline Scenario: [...]

By: OrganicGeorge

OrganicGeorge — Mon, 06 Apr 2009 12:46:55 +0000

Badtux,

The only problem with your logic is that the six figure income people are now being laid off. In fact white collars jobs are now being lost at a greater rate than manufacturing or retail.

When most of your workers are laid off, middle management the next logical group for redundancy.

There have been some excellent discussions on the fact that old models no longer work in this economic environment. My questions is how will the banks new modeling for MTM be considered a true reflection of the markets.

By: Top Posts « WordPress.com

Top Posts « WordPress.com — Mon, 06 Apr 2009 00:03:20 +0000

[...] The Mark-to-Market Myth Today the Financial Accounting Standards Board voted – by one vote – to relax accounting standards for certain types of [...] [...]

By: Money and “Money” « Hungry Hungry Hippos

Money and “Money” « Hungry Hungry Hippos — Sun, 05 Apr 2009 22:06:25 +0000

[...] and “Money” By urbino Econo-blogger and member of the Knights Who Say, James Kwak weighs in on the recent change in accounting rules for banks: Investors and regulators are not idiots. They [...]

By: Jason

Jason — Sun, 05 Apr 2009 17:50:44 +0000

Just wanted to point out that in the Board’s comments from its April 2 meeting, they acknowledge that significant changes to the FSP FAS 157-e version that was put out for public comment would be reflected in the final version. A couple of these changes seem to temper the provisions in the draft that were perceived as a “relaxing” of the application of fair value accounting. First, the presumption that transactions in illiquid markets are distressed will be removed. Instead, such determinations will require consideration of available evidence. Second, when a change in valuation technique results from applying the FSP (i.e. presumably level 1 inputs are foregone in favor of level 3 inputs), the entity must disclose the inputs associated with the new technique and estimate the effect of employing the new technique (i.e. disclose the valuation that would have resulted based on the level 1 inputs). I tend to agree with others that the new FSP will not, in practice, result in valuations that are significantly different than those that would have otherwise resulted from applying FAS 157, I think these changes are appropriate in that they may improve the transparency associated with any divergences from standard FAS 157 based on the FSP. That said, I am generally skeptical of such divergences for the reasons James outlines.