What part of mark-to-market don't you understand?

Wow, that is complete WWF style smackdown on my argument.

I have heard the suggestion that mark-to-market should be suspended when markets are completely frozen or it should more preferably modified to show a three-year running average....but nevermind.

I have been thoroughly repudiated. Would be curious to hear Paul's response on the running average idea that was floated, but I'm pretty sure what his response would be already.

Thanks, Bryan. I guess it was a little strong, but I have actually been arguing for MTM for investments since my first big-time publication in 1978. Over that time, I have honed my points and, alas, lost my patience with those who would duck accountability for their risky behavior by reporting as if there is no risk.

i haven't seen your running (moving?) average proposal, but I would guess that your anticipated response is right. That's not to say that an average wouldn't be useful information to be disclosed, but, as I see it, and as a CFAI committee said back in 1993, if there is any smoothing to be done, let the analysts do it, using raw data published by management. For far too long, accountants and managers have tried to pre-digest the truth by smoothing results before they're reported. The result is like trying to predict tomorrow's high temperature based on the average for the last 100 years. It isn't wrong, and in some cases might be right on, but I'd much rather have more recent unsmoothed information based on current conditions, not past averages.

I say, make 'em report the real results, warts and all, with the volatility exposed for all to see. If some analysts want to ignore the volatility and use an average, let them. I suspect that the capital markets have some sort of Darwinian effect as the less adept are squeezed out the DNA chain. For the rest of us, what would happen is that the managers would begin to manage what gets measured and would go on to change their investment policies to reduce or at least mitigate risk instead of pretending there isn't any.

Thanks again for the compliment. At least, I think it was a compliment.

Paul

PSST---WANNA BUY A SLIGHTLY USED HUMVEE?

You really want to buy my HUMVEE, but you need to
come up with a realistic price. Here are your choices:

A) Blindly accept the asking price,

B) Discount off the sticker,

C) Refer to the Blue Book value,

D) Take a look at what the suckers actually selling for on craigs list and Ebay.

Which do you chose?

Paul,

Thanks for the kind treatment of the running average idea. And yes, they was homage to a well thought out position with excellent support.

In mind now, there is absolutely no reason not to mark-to-market. The fact that Republicans are suggesting suspending the rule in the new bill is serious cause for concern. I thought they were the party of deregulation but transparency and letting the markets work. Alas, it appears not.

I have been educated.

to paraphrase churchill:
MTM is the worst form of accounting, except for all those other forms that have been tried from time to time.

The thing is to understand that MTM does have its flaws, such as,
1. MTM does not necessarily represent the price you'd get for a sudden liquidation, much like going to a pawn shop you'd take a haircut. But how much is a guess...
2. MTM does not work well for illiquid products where the only observations may be for small size or old or just not available (exactly what is a car part factory located on 33 Main St, Somewhere MN worth - not a big market for that product)..

that it is still better than some guy making up numbers that make him happy. So remain strong in your new found faith in MTM when faced with these arguments.

paul, you're a nice guy.

however, the bottom line is,

the essence of capitalism is the utter lack of essence, or substance: it's a house of paper backed by no substance. it's a game of deception in which the crooks participate knowingly and willingly, as long as they can get away with it. and it's been all legal and DANDY.

NO MORE.
p.s. is this post gonna be duplicated again? sorry.

curious steve, what alternative are you proposing to capitalism?

Here's the liability part that I don't understand (I'm still working on my response about applying 157 to the asset side) -

2-Step Plan to Save the Financial Industry
By: (With acknowledgement and thanks to Alex J. Pollock, Resident Fellow, American Enterprise Institute)

Step 1: Fast track the implementation of the SFAS 157 provisions for liabilities. This “Accounting Standard” requires institutions to mark their liabilities to “market” or what SFAS 157 refers to as “fair value”.

Step 2: Petition the debt rating institutions (such as Fitch & Moodys & S&P) to down grade ratings on the debt of financial institutions.

Sit back and let the plan work.

Bottom line: SFAS 157 (a/k/a FASB 157 “Fair Value Accounting Standards” or "Mark-to-Market Accounting Standards”) requires institutions to revalue their assets and liabilities in accordance with exchange prices or some “market”. A reduced credit rating reduces the market value of the subject Company's liabilities. Following the guidelines of SFAS 157, any reduction in liabilities increases shareholder equity and shows up as income on the income statement. Income is up. Shareholder equity is up. Problem solved!

Caveat: Avoid contributions to equity, such as from the Government or from new shareholders, since such actions could improve the financial institutions' debt ratings and undo the plan set up by SFAS 157.

[...] they hold, they are basically being given permission to lie. (Check out my friend Paul Miller's very clear statement of this position.) But the market is, over the short-to-medium term at least, a hyperactive ninny. Any corporate [...]

[...] hold, they are basically being given permission to lie. (Check out my friend Paul Miller’s very clear statement of this position.) But the market is, over the short-to-medium term at least, a hyperactive ninny. Any corporate [...]