• 25 Feb 2009 at 4:53 PM

Mark To Bernanke

If you dozed off for just a second, you missed it.

Federal Reserve Chairman Ben S. Bernanke said accounting standard-setters need to figure out how the mark-to-market rule blamed for worsening the global financial crisis should be followed when assets aren’t readily traded.
The rule, which requires companies to write down assets every quarter to reflect market value, is “a good principle in general” and shouldn’t be suspended entirely, Bernanke told the House Financial Services Committee today. “Accounting authorities have a great deal of work to do to try to figure out how to deal with some of these assets, which are not traded in liquid markets,” he said.

Yes, indeed. If numbers aren’t looking like what we want, we’ll just make up some numbers and call it all good. Perfect!
Tim Geithner was seen to nod vigorously from the Green Room where he watched today’s testimony, until an aide whispered to him that Ben wasn’t talking about tax returns.
Bernanke Says Mark-to-Market Accounting Rule Should Be Improved [Bloomberg]

96 comments (hidden to protect delicate sensibilities)
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Comments (96)

  1. Posted by guest | February 25, 2009 at 4:56 PM

    First? Bernake? WTF?

  2. Posted by Anal_yst | February 25, 2009 at 4:58 PM

    I believe the crux of the matter is the language in FAS-157 (etc) that instructs firms to “use their judgment” when deciding how to value/classify assets in less-than-liquid, or illiquid markets.
    Intentionally ambiguous, perhaps, but in times/environments like these, perhaps more elaborate guidelines are called for.

  3. Posted by guest | February 25, 2009 at 5:02 PM

    “You have all these rules, and you think they’ll save you.”

  4. Posted by guest | February 25, 2009 at 5:04 PM

    “Yes, indeed. If numbers aren’t looking like what we want, we’ll just make up some numbers and call it all good. Perfect!”
    Heh, thought you knew. A broken economy helps nobody.

  5. Posted by guest | February 25, 2009 at 5:06 PM

    Mark-to-market is a great way to hide losses until you a)retire b)generate gains.
    The system was used for OTC equity derivatives back in the 90′s. By the time the dust settled UBS was out > $500MM (a big number for back then), Solomon lost a ton (Derek Maugham tried to make changes but too late, Travellers took them over). Allowing traders to mark to market is like giving High School kids take-home tests with the answer key so they can grade their own work: they’ll all get great scores but what happens if you give them the test in class w/o the answer key?

  6. Posted by guest | February 25, 2009 at 5:09 PM

    @ 5
    Agreed

  7. Posted by guest | February 25, 2009 at 5:11 PM

    My recommendation for the FASB is adopt a rule explicitly stating that TSTG will determine fair values for all illiquid assets and shall have final authority in the matter…and hell, for liquid assets too.

  8. Posted by guest | February 25, 2009 at 5:13 PM

    Hi, My name is Nick Leeson. What is Mark to Market?

  9. Posted by guest | February 25, 2009 at 5:16 PM

    The Accounting industry is going to steal all future science fiction writers, thereby causing a deficit in new readable fiction.

  10. Posted by guest | February 25, 2009 at 5:17 PM

    @5, huh?
    I think we should do away with “mark-to-market” in other endeavors like professional sports.
    So in basketball each team would determine the score based on its informed and unbiased estimated how many points it felt like it should have made that day.

  11. Posted by guest | February 25, 2009 at 5:19 PM

    @9
    What about 10-K filings? Are those now going to have to be moved from non-fiction into fiction? I have a feeling the filings haven’t been read by the typical science fiction reader yet.

  12. Posted by guest | February 25, 2009 at 5:23 PM

    Yeah, I think you should loan me $20 Million against my $30 million home. How do I know my house is worth $30 million? What are you freaking blind? Can’t you see the “for sale” sign that says $30 million on the front lawn? Offers? Yeah, I had 3 but nothing over $2 million. That’s because my home is illiquid (otherwise people would offer me the asking price!).
    Sheesh! The point of Mark-to-Market is to value a security for what it is worth. In a free market system that is what the highest bidder will pay for it!!! There’s nothing illiquid about these securities. MER unloaded $40 Billion worth. They were worth(!) 22 cents on the dollar, like it or not! Pretending their worth 90 cents doesn’t make it so!

  13. Posted by guest | February 25, 2009 at 5:25 PM

    @5 That’s not mark-to-market. That’s allowing traders to tell you where the market is without verifying the marks independently. Incidently, removing mark-to-market will allow precisely this behavior. Mark-to-market was implemented precisely so that firms couldn’t hide losses by inventing a value that didn’t match what the market said the value was. Get a clue

  14. Posted by guest | February 25, 2009 at 5:28 PM

    @5,
    removing mark-to-market is like saying that there should be no test at all.

  15. Posted by guest | February 25, 2009 at 5:28 PM

    Erin Burnett’s bolt-ons are trading up in the aftermarket.

  16. Posted by guest | February 25, 2009 at 5:33 PM

    Anyone see Obama dis Geithner at the end of his 3:50 comments? Geithner goes to shake hands and Obama looks tense and angry. Check out about the 6:15 mark: http://www.cnbc.com/id/15840232?video=1045687816&play=1

  17. Posted by guest | February 25, 2009 at 5:35 PM

    “Accounting authorities have a great deal of work to do to try to figure out how to deal with some of these assets, which are not traded in liquid markets.”
    HEY FUCKFACE BEN! When the engines aren’t falling off the plane at 30,000 fucking feet then we can worry about more important things like Coke vs. Pepsi in the Pepsi Challenge.
    I don’t recall mark-to-market holding a gun to anyone’s head forcing a NINJA loan down their throats and out their ass.
    Of course FASB announcements are somewhat ambiguous. If they weren’t then every position would be longer than War and Peace and nothing would get done.
    SPODE

  18. Posted by guest | February 25, 2009 at 5:40 PM

    @16 thx for the link.
    Looks like there’s trouble in paradise!

  19. Posted by guest | February 25, 2009 at 5:46 PM

    @16,
    he’s probably still pissed about the whole turbo tax thing. can’t blame him either.

  20. Posted by guest | February 25, 2009 at 5:57 PM

    @5 here. Sorry if I wasn’t being clear. I meant mark-to-market for illiquid/non-exchange traded/OTC products is a disaster. The traders make up the prices to suit their needs (quants running “models” are stooges for the traders).
    UBS found a bidder for their index vol book. It was half of what they were “marking” it to. These guys were trading index vol and they still got away with setting their own marks because they were “exotic” options (asian, lookback) and hence couldn’t be valued using the “vanilla” exchange traded products. Same system being put to work in credit derivatives. Glad to see Wall Street learns its lessons.

  21. Posted by guest | February 25, 2009 at 5:59 PM

    @19
    He shook hands with congresscritters only, not Summers and Geithner. Those 2 are on probation.

  22. Posted by guest | February 25, 2009 at 6:01 PM

    He snubbed him HARD… BO knows it’s amateur hour at the Treasury… Timmys gonna expose everything as the giant fucking racket it is

  23. Posted by guest | February 25, 2009 at 6:05 PM

    Most people can’t correctly model what the banks are saying there assets are worth now — if you get rid of market to market, the 10% faith left that people have in the banks being honest will got ot 0%.

  24. Posted by guest | February 25, 2009 at 6:08 PM

    Everyone in D.C. knows the verkakta banks should be out of business. Timmaaay can go home now. It’s all politics from here on out.

  25. Posted by guest | February 25, 2009 at 6:10 PM

    @10 greatest post ever. even on that basis the red socks would still lose.

  26. Posted by guest | February 25, 2009 at 6:22 PM

    Could our newly minted president, Tan Jimmy Carter, be more of a cock? I’m going to trade school evenings to learn the plumbing trade. I suggest you slobs do same…

  27. Posted by guest | February 25, 2009 at 6:26 PM

    @9 if they do that, who’ll create the new religions?

  28. Posted by guest | February 25, 2009 at 6:30 PM

    @26- just as soon as you hightail it back to your double-wide, you ignorant douche.

  29. Posted by guest | February 25, 2009 at 6:38 PM

    @28 – see you at the ACORN meeting in Cambridge tomorrow night. Tell Barney I’ll see him at fetish night at Man Ray.

  30. Posted by guest | February 25, 2009 at 6:43 PM

    #26, At least Jimmy Carter was a man of faith.

  31. Posted by guest | February 25, 2009 at 6:44 PM

    Ben, where is your helicopter? You sounded so smug and sure of yourself when you proposed it 7 years ago. Now it’s all you have left, douchebag.

  32. Posted by guest | February 25, 2009 at 6:45 PM

    Mark-to-market becomes a bigger problem when you are 1) hugely leveraged and 2) depending on wholesale funding to finance your position. This crisis is more about reckless management than accounting rules….

  33. Posted by guest | February 25, 2009 at 8:16 PM

    @26
    I bet you’ll flunk plumbing school. Why don’t you become a repo man? Great demand, no need to go to school. Night hours, but that doesn’t bother you I hope. You can sleep during the daytime in your mom’s basement and she probably likes it that way.

  34. Posted by guest | February 25, 2009 at 10:31 PM

    i just manually relieved my human plumbing while watching law & order svu

  35. Posted by guest | February 25, 2009 at 10:34 PM

    Holy hell, so many Tim Sykes-wannabes on this board I can hardly stand it. Here’s a thought: a credit gets marked at 40 cents because that’s the best they can do in the current market. Owner of the ABS couldn’t care less because he is making 8.5% on what he thinks is reasonable risk. So, for a high quality receivable, mark-to-market can go F itself because I’m fully paid on a 8.5% mortgage and I’m all set, thank you (taking liberty on certain assumptions here, focus on the point). And if parts of my tranche hit the shitter I might still very reasonably make a weighted 5 or 6% which is better than the atrocious equity market which might be DOWN less than 10% in 2010 if lucky. Alternatively under MTM accounting, force me to account for my credits at 40 cents, when the credits, cum default risk, yield me 5% per annum. Short story: owner is better off holding the mortgage than he is selling it, so why force him to mark at the saleable price than the true fundamental NPV?

  36. Posted by guest | February 25, 2009 at 10:52 PM

    @35: One word: leverage. The bank business model is borrow short to lend long. The reason a bank should mark to market is because market is what it would get if it has to sell because depositors come looking for their money or it can’t roll over its short-term paper.
    If you’re unleveraged, sure your argument is fine, just hold to maturity. If you’re leveraged, you mark to market because you might not have the option of holding to maturity.

  37. Posted by guest | February 26, 2009 at 12:12 AM

    @35 : That’s the point – “mark to market”. The alternative is for banks to claim that the “markets are broken” therefore we are marking 40 cent assets at whatever the hell we want, under the assumptions of default we choose because we don’t like what the market is telling us.
    For an investor in a levered entity that’s lending long, and borrowing short don’t you think I’d want to know how likely it is that they’d come up short?
    Mark-to-market is what its name says it is. Don’t like it? Don’t fucking buy illiquid assets until their yields justify the liquidity and complexity/model risk!

  38. Posted by guest | February 26, 2009 at 12:16 AM

    @36 – 37 here. Exactly. All these cries to suspend MtM are simply going to make things worse. Who wants to face a counterparty that may be solvent one day and suddenly file the next?

  39. Posted by guest | February 26, 2009 at 12:54 AM

    @35 In your setup, the market thinks your asset is worth only 40 cents while you think worst case you’re going to get a 5%-6% return. Somebody’s wrong about the future cash flows, and it’s probably you. The world just isn’t full of free lunches known only to the asset owner. Also, the idea that the market prices are temporarily out of whack because “no one’s buying” is flawed. Sure the value of my house went from $600K to $300K last year because no one’s buying. I still have a $300K house.

  40. Posted by guest | February 26, 2009 at 8:27 AM

    @39 – you miss the point. Your house doesn’t generate cash flow. Debt instruments do. If no one’s buying, there is still a probability of a future cash flow, which does have value.
    You may argue about probability and severity of future loss, and the discount rate necessary to get a needed return, but it does have value, even if no one is buying the note right now because they’d get fired for doing so. That is the crux of the argument.

  41. Posted by KevinB | February 26, 2009 at 8:27 AM

    @8 – You’re Nick Leeson? Loved you in “Darkman”, dude.

  42. Posted by guest | February 26, 2009 at 8:48 AM

    @33
    the life of a repo man is ALWAYS intense…

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