Comments on: Accounting change won’t save banking http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/ Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Duncan http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10126 Tue, 17 Mar 2009 19:35:13 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10126 One of the key concepts of mtm missing from this discussion is the assumption of a normal “orderly” market. Mtm works going up because supply and demand are by definition, functioning. Mtm is equally applicable in a normal orderly down market where yes, all the banks their their beatings.
But when the market collapses, what are you marking to? Liquidation prices? That is a self-fulfilling death spiral. Reg change/relief from accounting practices not intended to function in the absence of a market is necessary for the survival of the financial sector in America and elsewhere. All the stakeholders involved are feeling the pain – all for bonus clawbacks here.
This is not an argument for avoiding the consequences of stupid risk taking. Stupid risks were taken, reputations and fortunes are crumbling. But we don’t want the whole ship (which all of us are in like it or not) to go down as well. Why should someone looking to buy a house or a car now be forbidden because the banks won’t lend? Why should non-bank businesses small and large be refused normal credit lines for making payroll and basic investments in inventory and operations?
When a patient has a bad heart, we don’t cut off their head, we get their heart pumping again and put them on a restricted diet. Mtm reform must be a component of the restart plan – but only as it pertains to extraordinary market conditions for certain types of assets.

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By: ron_paulite http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10018 Mon, 16 Mar 2009 11:52:34 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10018 In good times, they loved M2M because it inflated assets and share prices shot up. And the government also collected more taxes.

Now, M2M is making them look bad and they want to change the rules mid game?

They say the markets are irrational and do not truly price their assets. Why didn’t they say the same thing when the markets were at all-time high?

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By: ron_paulite http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10017 Mon, 16 Mar 2009 11:51:28 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10017 In good times, they loved M2M because it inflated assets and share prices shot up. And the government also collected more taxes.

Now, M2M is making them too bad and they want to change the rules mid game?

They say the markets are irrational and do not truly price their assets. Why didn’t they say the same thing when the markets were at all-time high?

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By: Franz Kafka http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10014 Mon, 16 Mar 2009 08:39:21 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10014 Plenty of reasonable arguments against relaxing the current standards have been presented here. The banks argue that they are being hurt by the applicable standards and that the value of the assets is higher than what the books say. That may be correct but that’s not point. The point is that markets don’t think so, the perception is what counts not the reality. Well they’ve accepted the rules and played them like the rest of us. Now they don’t like it any more? That’s bizzare soup opera. They are the main culprit in the current scenario and they have contributed to the distortions now prevalent and these are to be forgotten?. Common this is not a legal proceeding, the jury can’t be told to forget the last remark. Furthermore they’ve allways had number of instruments at their disposal allowing them to manage the unforseen (hedging, insurance etc). They’ve bee paid handsomely to do just that (extracting the meat from the bones) yet failed at managing the resources by the then applicable rules and they have now the nerve to ask everybody to look the other way? If politicians take away that principle based approach than what chance does the society’s other principles stand (legal, moral, accountability, freedom..) – all in the name of a paper profit ?

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By: Colin http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10013 Mon, 16 Mar 2009 08:06:48 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10013 Whatever happened to the old accounting basis of prudence?

If all banks wrote their balance sheets down to “lower of cost or net realisable value” then what James wrote – “They do not reliably know who is bust and who is not.” would disappear.

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By: Lee PH http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10012 Mon, 16 Mar 2009 07:18:57 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10012 The mark-to-market rules came as a result of abuses in the past by hidden Losses or Reserves. Understanding the issue and blaming the current mayhem on mark-to-market rules is rather weak attempt on a solution.
The increase in market values over the past 5 years came to drastic halt and fall should reasonably be weighed by unreasonable expectation in further wealth creation. The huge corrections, both in advance and emerging countries must be reinforced by political strength to re-build and repair the damages. Naturally, those that had voilated laws to perpetuate their own greed and wealth in suspicious manner must be bought to justice whereever juristidictions.

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By: RALPH JARMON http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10010 Mon, 16 Mar 2009 06:30:05 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10010 As a CPA I can only say that any change to this most basic precept of Accounting Law, Fair Market Value, is total blasphemy that will blur and twist financial reality to absurd distortion and make the government advocates of delusionary economics; the disease it is supposedly trying to cure.

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By: atomikweasel http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10007 Mon, 16 Mar 2009 05:00:05 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10007 I know this is a bit broad with respect to the immediate topic, but I have a question. Does anyone, essentially irrespective of their political orientation, have *any* confidence in Summers and Geithner at this point?

Talk about a random walk!

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By: Don http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10004 Mon, 16 Mar 2009 01:36:43 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10004 I haven’t really heard an explanation about the derivatives component of this mess. It’s a deep issue when people start questioning book values and when declines in value should be expensed rather than remaining capitalized. I doubt the accounting profession would consider the reverse – realizing income on increases to market value. The volatility of the markets would make this type of accounting a real headache. I can see however how somebody might try to capitalize a derivatives contract to market value. For me, insurance costs should be expensed over the life of the policy in terms of the contract buyer. The writer on the other hand if she is naked, she should buy some shorts.

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By: atomikweasel http://blogs.reuters.com/great-debate/2009/03/13/accounting-change-wont-save-banking/#comment-10001 Mon, 16 Mar 2009 01:15:58 +0000 http://blogs.reuters.com/great-debate/?p=2473#comment-10001 With respect, my perspective is that the market price is the market price. If one feels that the current market price will increase in the future and that one is right to hold out for that future price that may or may not prove a sound judgement, but it is what is referred to as speculation–a judgement.

The current price is the current price.

The problem with abandoning mark-to-market is that it allows for infinite possibilities of error and delusion, the notion that ‘I’m right, the market is wrong’. It was the poor judgement of these institutions that these markets could not possibly become illiquid or decline substantially let alone catastrophically in value, and we are now to trust in their judgement, their speculation, that they project future values more accurately than others in the market as reflected in the dearth of offers at the prices they, in their infinite wisdom and judgement, consider ‘reasonable’?

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