Would suspending mark-to-market rule solve the financial crisis?

I say do what Speaker Gingrich says, and let the chips fall where they may. It's the best plan I've heard, too, and it certainly can't hurt us more than Paulson's anything-plans.

ABSOLUTELY POSITIVELY it has to be done to stop the spiral that eats the capital of banks without cash implications.

this 157 is stupid in the current panic market environment.

GINGRICH ALSO NOTED THE SIMPLE EXPEDINANT OF HANGING PROFIT CHARTS UPSIDE DOWN WOULD MAKE A WORLD OF DIFFERENCE AS WELL....

you`ve got to be kidding me, more voodoo economics? you mean that dollar that`s worth 50 cents would be worth a dollar just because newt says so? it makes no sense.

This is exactly what the caused the underlying problem in the FIRST PLACE. By pretending that our $20 is still worth $20 even though it is not, we are living under a misguided sense of security. To carry it a step further, not only would we pretend that we have "$20" but we would continue to use it as $20 collateral to go out and borrow another $600 which exactly what the large hedge funds have done. But since we really want that soda bad, we can ask the government to subsidize us by buying the $20.00 our pocket with taxpayer funds to the tune of $1000. Perhaps we had best consider drinking water in the future.

Whatever happens, we must never surrender to socialism. We fought the National Socialists for Europe. We fought the Soviet Socialists for the World. Now we must fight those same socialists for America. We must not lose it. Anything is better than surrender. We can survive an economic crisis, but we might not survive socialism. If we cannot find leaders, then we will make our own.

Did you read the article? It's on Forbes.com, and it makes perfect sense.
I heard former Speaker Gingrich's interview on "On the Record" last night, and it was quite eye-opening.

Did you know, because I had not heard this from any news outlet, and I listen or read several, that in a recent "Wall Street Journal" article Paulson was exposed as allowing the CEO of Goldman Sachs--his former employer--to sit in on the Fed meeting debating the bailout of AIG for $85 billion? It seems Goldman Sachs had a $20 billion exposure on the line in the deal. Can you spell "conflict of interest"? Paulson ought to be fired immediately, and this is the same guy who "authored" the bailout bill that would have made him virtually untouchable while he used $700 billion dollars without any oversight or judicial review. Thank God for the Republicans and those Democrats who sided with them. (What did you all think about the so-called leadership meeting with nine Democrats to two Republicans?) I say there is more corruption in this whole matter than just the bailout bill, which, thank God, failed!

I say spread the word and make congress get rid of mark to market rules. But we need to educate the public and get the word out

Why not change the machine to accept $1 bills. In other words, let's do business with the countries that "think" our dollar is still worth a dollar and not the ones that have undervalued it in the first place!

Mark to market allows for more accurate valuations of assets. If we remove that accounting principle, then institutions will claim to have higher valued assets than could be sold in today's market.

Hoping those assets will be worth more in the future is not a good model for valuing the assets of these feeble institutions.

Hope is not a risk management strategy.

When the market fails the estimate of value which is Mark to Market also fails. This inability to properly estimate the true value of the securities in each banks portfolio is the problem. The banks haven't lost the money yet. They just had to take an estimated paper loss because of the MtoM rules. Kill the rule for one year and let's start building and working. Accounting is not real.

I say no bailout. Why should we reward those CEOs who screwed so many home owners.

Wow, it never seems to amaze me how masochistic people can be. Newt is asking for companies to value their assets like they see fit. This will only lead to further abuse. Free-market idolizers really aren't the people we should turn to, these are the people we should turn away from. And no it doesn't mean I want socialism. It means that our founding father's had one thing right. It's all about balance.

The older I get, the more I find out how much I don't know. It's the same with the current crisis. I don't know why they changed the rule, but I suspect it was because they felt banks were not properly valuing their holdings. As with anything involving the government or lawyers, it is very likely that they messed up the rule change, and forced banks to value their assets at too low a value. It makes sense to fix the rule to make the value correct, but from everything else I've heard part of the problem is that nobody really knows what the at risk holdings are worth. I doubt changing the accounting practice will make us smarter about THAT.

What a lot of you who disagree with Newt are overlooking is that something like 97% of sub-prime mortgages are NOT in default, yet the market is acting like they are all worthless because they don't know exactly which loans are included in these mortgage based securities that have been created by bundling together these mortgages. Since the market deems these mortgages (which are worth quite a bit as long as they are being paid) to be worthless, the banks have to drop them from their asset sheet. This causes their reserve ratios to go out of whack and dries up ALL available liquidity. No liquidity, no lending. As a result, LIBOR (the rate that adjustable rate mortgages are tied to) has jumped drastically in the last few days. If this rate doesn't drop (and I see no reason for it to drop without some action being taken) people will see their payment double when these ARMs come due for adjustment. When that happens, the percentage of loans going into default will go thru the roof, and Depression here we come.

All of this because we wanted to change accounting rules to make things more transparent.

Instead of bailing AIG out of their mess, I have a better solution.
Take the $700 billion and give everyone in the USA who is 18 years old or older a share of it, which would be about $425,000. [Editors Note: your math is wrong is is closer to $4,250] The people will bail themselves out of bad mortgage situations and bad credit situations. That, in turn, would put money back in the banks and turn the economy around. There would then be money to lend and, in some cases, money to spend - all of which would shore up the economy.
Why make each person in the US cough up $2,000 to pay for this bailout when money given to these same people would bail out the economy. I say the people deserve the money - not AIG, and certainly not Fannie and Freddie whose CEO's walked away with huge settlements in the millions!

Do you really think that those securities are really going to be worth more just because the carrying value is changed? If that works, lets just increase their value to reflect a gain! If that works, lets mark them up again and create an even bigger gain! They are worth only what a buyer is willing to pay.

Well, if nothing else, we're all getting a crash course on the finance industry! What Tom said about "97% of sub-prime mortgages are NOT in default", I find QUOTE interesting, nor did I have any idea. It really does make sense tho. Here's to hoping we have some just as sensible people in Congress.

At one time mortgages were valued at lower of cost or market with market being the price of the collateral. If the collateral decreased in price below the balance of the mortgage you would write down the mortgage. Even in today's housing market, prices have not dropped that far. There is just no market to sell the mortgages so the price drops until a "market value" is established which could be set by only a few desparate transactions. The resulting paper loss erodes the bank's capital and causes the bank to "fail" even though no cash loss has occurred. Never understood why mark to market came about for mortgages. It should be applicable to traders only

Suspending the 'Mark-to-Market' rule will not help! If this is done, the value of these securities in the open market will still plummet since everyone knows they contain a lot of Bad Debt. Avoiding the rational "Booking" of the asset value at the "Market Value" will not change the actual market value!! For the firm to either 1) sell the assets for cash 2) factor the assets as collateral to borrow cash, the firm depends on the Market Value of the assets to use them as collateral for cash. Allowing firms to avoid "Booking" the Market Value only throws other institutions with viable assets into trouble since the suspension of the accounting rules makes lenders unsure of the value of their (otherwise viable) assets as well.


I would propose the following be instituted in the next plan to secure the interests of the American Taxpayer and the interests of the average American Homeowner. First, the Government should acquire a 90% equity share in AIG, ensuring the USA Government has absolute control over the company and the existing stock-holders bear the full brunt of the resulting losses/costs associated with the Bad Assets and the cost of the bail out. The losses born by the existing shareholders would be a little less than 90% of the existing equity value in the company (the government taking from them the 90% equity share). Second, a Congressional Oversight Committee should be established to oversee all operations in the company. The oversight committee can then act as a very involved Board of Directors, overseeing all major decisions and all management/managers in the company. The committee can also establish new rules within the company as to how it will function and carry out its general operations. Thirdly, the entanglement of the mortgage backed securities/assets should be "dis-entangled", allowing for identification of individual mortgages contained within the assets, and allowing for proper treatment/management of each mortgage within the operations of the firm. Fourthly, the terms of these existing mortgages should be reset to allow the interest rates embodied within them to go back to the low levels that existed when they were first issued (all rises in interest rates being canceled). This would entail a major Write-Down of these assets, however, it would almost surely ensure the repayment of the principal amount of these mortgages along with some payment to cover inflation.