so long, mark-to-market
It’s been almost 2 weeks since it passed, but debate over suspending mark-to-marketing accounting is still raging out there. Some say suspending MTM will be the end of banks spilling red ink; others say it’ll just hide the spill. What’s your POV?This week’s issue of Newsweek offers a great, concise explanation of the whole MTM argument, pro and con – “Mark-to-Market My Words” by Matthew Phillips. Bloomberg’s John M. Berry welcomes the MTM change, while The Financial Times proclaims, “Confusion reigns.” (The FT wishes the U.S. Financial Accounting Standards Board had rolled with its international counterpart’s plan for a comprehensive rules-review in 6 months.)
Now that we’re in the thick of earnings season, when income and balance sheets get scrutinized from every angle, it’s bound to raise questions about how suspending MTM will affect 2Q09’s earnings. Where do you come down on this?
[image: Read wrote red by photorat.photography on flickr]
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Comments
Follow commentscorbinb2 posted April 16, 2009 (10:07AM)
Perhaps some plain english categories when reporting financials?Money we made/lost
Value of stuff we have
Money other people owe us
Money we owe other people
Is there anything else?
The fact of the matter is that financials in general have become a big smoke and mirrors show that are designed to deceive or at least put things in the best light possible. What is right and fair is usually what is simple, so my guess is we will never see that from corporate America or the government for that matter.
How and when things are valued do not change their ACTUAL value. Smart investors will look at the actual value numbers for future guidance on the company and it's stock. My guess is that a lot of investors won't though and hence will inevitably lose a lot of money due to being 'suprised' by future bad earnings.
WeirdUncleJesse posted April 16, 2009 (09:23PM)
Corbin,I totally agree with you on #'s 1,3,and 4. It is #2 that is in question here (as per MTM). There is no market for CDS's. So what do you do with these long term 'assets'? Mark them to zero, even though many of these are actually fairly solid loans? Assume them to be solid though the housing crisis will make many of them worthless? Analize them individualy according to some nebulous formula (expensive!)?
IMO, I think the program offerred by Geithner to be a semireasonable (though potentially expensive to the taxpayer) alternative. This comprimise does offer a potential profit to the taxpayer unless the specifics does expose all of us to a large loss if abused.
IMO, it depends on how it will be effected. If the Big Money wants to Invest, it can work. If it wants to gamble, it can be costly.
In short, the proposed plan is a gamble. The balance is the public esposure given to the specifics. The counter balance is that PR is a valuable commodity. Let's hope for transparency.
~~Weird Uncle Jesse~~
bigdog posted April 17, 2009 (06:38PM)
You both raise some great points - thanks. I hadn't been thinking about MTM this way, but Corbinb2's right: accounting arcana has produced jargon that only gets in the way of understanding the numbers that are supposed to provide transparency in the first place. I find it interesting, for example, that every article I read about suspending MTM doesn't define what that really means in plain language until halfway down the article. I bet many investors - present company excluded, of course - don't even realize how central this issue is to this crisis.Weird Uncle Jesse, I'm with you, too. Those houses in foreclosure might be worthless by today's market prices, but a solidly built house in a good neighborhood really can't be entered as "zero-value" on a balance sheet, either. I also agree we have to keep a close eye on how transparently the toxic assets program and TARP spending proceeds. My guess is that two of the key catchphrases for the rest of 2009 will be "transparency with TARP / toxic assets" and "regulatory reform".
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