Rolf Englund IntCom internetional
The entire world went into debt for the equivalent of tropical vacations and, having now enjoyed them, realizes it must pay the bill. The resources to do so do not yet exist.
"extend and pretend."
Extend and Pretend is Wall Street's Friend
JPMorgan said the mark-to-market losses came in the bank’s chief investment office, a unit set up to invest excess deposits,
"it is an open secret that numerous European banks" would run into trouble
Two /IMF/ officials said one estimate showed that marking sovereign bonds to market
IMF’s work, contained in a draft version of its regular Global Financial Stability Report (GFSR), uses credit default swap prices to estimate the market value of government bonds of the three eurozone countries receiving IMF bail-outs – Ireland, Greece and Portugal – together with those of Italy, Spain and Belgium.
En bank får låna ut 10–20 gånger sitt egna kapital.
IMF och EU oense om värderingsprinciper. Är det viktigt? Ja!
Cconcern at the approach taken by BNP Paribas and CNP Assurances
US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.
Mark-to-Make-Believe Perfumes Rotten Loans
Ever since new rules took effect last year, lenders have been required to disclose the “fair value” of their loans each quarter. The results have been something of a mystery, though. Some banks show large disparities between these numbers and the loan values on their balance sheets. Others don’t.
One big reason: Thanks to the loophole, they don’t all have to follow the same definition of fair value. My guess is most investors don’t know this. Often lenders’ disclosures don’t clearly explain which approach they’re using, or that companies have a choice. Unsuspecting readers of their financial statements easily could be misled.
By the way, what ever happened to all those Toxic Assets that were on the banks' books?
I never imagined that mark-to-market accounting would be the theme of a sell-out musical comedy.
Any alternative to universal mark-to-marketing accounting gives carte blanche to creative finance directors.
And yet I realised that I did not apply mark-to-market principles in my own life. Like most homeowners, I would pass the windows of the local estate agents and take a surreptitious look at the prices of houses that resembled my own.
At other times, market values are flattering. Enron, the musical, begins with the US energy trader’s (now jailed) president Jeff Skilling holding a champagne party with his colleagues. Not to celebrate a deal, or a promotion, or to toast Enron’s ever rising share price: but to recognise the arrival of a letter from the Securities and Exchange Commission approving the wider use of mark-to-market accounting in Enron’s business.
Five golden rules for regulating the banks
Financial markets are imperfect and often make catastrophic mistakes. Financial institutions are driven by herd instincts. Waves of euphoria and despondency among bankers invariably aggravate economic cycles and sometimes mis-allocate capital on a monumental scale.
The implication is that bank rules must change with the economic environment — tightened when the economy is booming and loosened in slumps. Banks must be forced to save their boom-time profits, rather than pay them out to shareholders and employees, so as to offset inevitable losses when the economy slows.
Banks are not just ordinary businesses and cannot operate by the same rules. Much of the damage in the financial crisis was caused by forcing banks to use mark to market accounting rules, which deluded them into paying out illusory paper profits in the boom and then vastly exaggerated their potential losses in the slump, causing panic among their depositors.
Mervyn King and Vince Cable have claimed that a bank that is too big to fail is simply too big. But this is plain wrong. As the Treasury White Paper points out, even quite small bank failures will have catastrophic results in a modern globalised economy, as the world learnt from the Lehman Brothers disaster and Mr King himself should have learnt from the messy effort to rescue Northern Rock.
Once it is accepted that all banks at all times require an ultimate back-stop of government guarantees, this leads to several conclusions.
All banks must be regulated and operate with more capital to cover potential losses. But they must also be forced to keep a large portion of their money invested in cash and government bonds, which they can liquidate immediately. This liquidity regulation is even more important than capital regulation and has been neglected in the British debate.
In future, governments will have to acknowledge that all bank deposits and secured loans are guaranteed without limit, but that all other money invested in the banks could be subject to 100 per cent loss.
Robert Reich, October 21, 2008
Last Wednesday, the European Central Bank injected €442 billion (£377 billion) of new cash into the euro money markets. This was the biggest long-term lending operation in the history of central banking and was equivalent to half the Fed’s entire monetary expansion in the past 18 months. Yet most people still believe that the Fed (along with the Bank of England) is engaged in a “reckless” experiment with inflationary quantitative easing (QE), while the ECB is steadfastly honouring the deflationist traditions of the Bundesbank’s “steady hand”.
The move is part of a worrying pattern of hasty changes in valuation rules that leave companies freer to use their own numbers rather than market prices.
Marking-to-market has some clear strengths.
But no one set of rules is perfect: if the market does not function then marking-to-market cannot work either. Even so, any move towards marking to model must come with robust plans for a thorough audit of the assumptions that underpin such valuations.
The Financial Accounting Standards Board voted to adopt new guidelines under the so-called mark-to-market accounting rules,
The new guidelines will apply to the second quarter that began this month.
The mark-to-market rules have forced banks to take steep write-downs on some assets, especially securities tied to high-risk subprime mortgages,
The banking industry and lawmakers of both parties have been pushing for the rules to be relaxed.
In an ironic twist, the new leeway for banks could undercut the government's new financial rescue program
Financials build steam on mark-to-market accounting
U.S. financial stocks rose Thursday, drawing strength from a decision made by the nation's accounting arbiter to ease guidelines that would have the effect of helping bolster the bottom line at troubled banks.
However, just as an exercise, imagine what it would be like if all homeowners were forced to mark to market the value of their homes,
In a sense, some owners marked to market in the US by using home equity loans to withdraw cash when values were at their peak in 2005 and 2006. And everyone behaved somewhat as if they were rich because the market value of their homes had risen.
Nonetheless, the freedom of homeowners with long-term mortgages to sit tight when the value of their homes falls, rather than realising losses, does help to cushion the blow of a swoon in asset prices.
Of course, households are not banks and do not have shareholders and bondholders, so there is probably no good reason for them to mark to market their assets.
Congress will force regulators to relax the much-criticised mark-to-market accounting rule
Mr Frank told representatives of the Financial Accounting Standards Board and the Securities and Exchange Commission that they had to act quickly to revise the rule.
Fair Value vs. 'Alice in Wonderland' Accounting: SEC Eases Rules
Reverse Leverage of Mark-to-Market Wrecks Banks
The world's banking system is caught in a vicious trap, with a forced sale of assets at one institution wiping out capital at others holding similar assets. Think of it as extraordinarily high reverse leverage.
You can blame mark-to-market accounting, the advent of new indexes that supposedly track values of a wide range of assets, or a market mind-set that assumes every asset is part of a bank's trading book.
Suspend Mark-To-Market Now!