Confusing Mark-to-Market Accounting at Banks

                                                     

               

I have been saying, going back to 2007, there was no reason to bail out banks. Credit guarantees, and/or takeovers, and in worst cases, conventional bankruptcies would have cleared up the financial mess without the lingering financial recession we now have.

               

Just one example of pure idiocy in the past: Accounting rules relating to assets, including mortgage-backed securities, required that they be marked-to-market if held for trading, or held "available for sale." Most banks hold such assets in one of these two accounts. Mark-to- market rules unfortunately applied.

               

Daily pricing of bank assets based on limited markets saw to it that bank net worth disappeared literally overnight. Short sellers legitimately took advantage of the fact and the downward market result became even more exaggerated.

               

In short: Much of the banking problems we have had could have been avoided with clearer thinking by the “experts.”

               

The financial meltdown that brought on this recession could have been self-corrected by simple market-place principles and no mark-to market accounting.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)