Suspension of Mark-to-Market accounting

[AuditorTurnedGood]

I realize this forum is most used by tax accountants, but I think this one effects everyone. Banks will no longer be required to use mark to market on securities for which there is no market, and will be allowed to use historical cost. Thoughts on what this means to us?

[Snaggletooth]

Window Dressing

This will allow financial companies to overstate their net worth. We call this "window dressing" in the accounting industry.

[BHoffman]

Mark to Market (MTM) rules required institutions to value their mortgage assets according to the most recently traded price.

Suspending these rules allow lenders to fluff up their balance sheets and start lending again, this time protected by increased FDIC limits.

So, it encourages banks to take on risk that it may not be able to afford, and promises to cover failures with taxpayer dollars. Perhaps not the best idea for the long run.

The Govt. wants banks to continue lending so the Public will continue spending. Problem is, I think taxpayers are frightened and would like to start saving and paying down debt instead of borrowing and spending.

Bottom line - I believe the economy would be a much better place if the US would bring back manufacturing jobs.

[AuditorTurnedGood]

After reading

This will allow financial companies to overstate their net worth. We call this "window dressing" in the accounting industry.

Conspiracy of Fools this summer, it would seem allowing people to use mark to market is what caused a large amount of Enron's problems (among other things). The banking industry seemed fine with MTM when it was on the way up, but the downside is killing them. Of all times, now seems like a good one to return to some good, solid, conservative accounting. Will they be allowed to write all these things back up? If so, does that mean more $ to the treasury due to taxes on the new found "Profit"?

[DTS]

Mark to Market (MTM) rules required institutions to value their mortgage assets according to the most recently traded price.

Suspending these rules allow lenders to fluff up their balance sheets and start lending again, this time protected by increased FDIC limits.

I thought all the recent talk in Washington was to temporarily suspend mark to market and see if there was an immediate improvement in things. I've been waiting, but have heard nothing of them doing this, yet.

So, do I understand correctly that this idea has now gone out the window and it's no longer a consideration?

[veritas]

The mark to market rule

from the bailout bill.


SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.
(a) Authority- The Securities and Exchange Commission shall have the authority under the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or order, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.
(b) Savings Provision- Nothing in subsection (a) shall be construed to restrict or limit any authority of the Securities and Exchange Commission under securities laws as in effect on the date of enactment of this Act.

[veritas]

It's not just

Mark to Market (MTM) rules required institutions to value their mortgage assets according to the most recently traded price.

Suspending these rules allow lenders to fluff up their balance sheets and start lending again, this time protected by increased FDIC limits.

So, it encourages banks to take on risk that it may not be able to afford, and promises to cover failures with taxpayer dollars. Perhaps not the best idea for the long run.

The Govt. wants banks to continue lending so the Public will continue spending. Problem is, I think taxpayers are frightened and would like to start saving and paying down debt instead of borrowing and spending.

Bottom line - I believe the economy would be a much better place if the US would bring back manufacturing jobs.

the US losig those jobs it is nearly every major manufacturing country losng manufacturing jobs. Since 2000 China has lost more manufacturing jobs than the US.