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Mark to Market Accounting Sodomized the Financial Markets

By Kelly Bowlin
Posted May 24, 2011 in Business
Mark to Market Accounting Sodomized the Financial Markets
Okay, a while back, the banks and Steve Forbes won. They got mark to market accounting rules. Simplified, mark to market means banks didn’t have to report write-downs in their assets because the underlying real estate that secured their loans had declined in value. As long as the loans were long term and not foreclosed on, they could keep the value on their books as it were when the real estate loans were originally made. The consequences have had a profound effect on financial markets.
Bad Loans on Upside Down Houses are NOT Being Foreclosed On
Pretty cool if you lived in Irvine and refinanced your home in 2006 when rates were low and your home was worth $1.5 million at a fire sale. By 2010, the home was worth $750,000 on a good day. You got laid-off and stopped making payments on a loan that had a balance $200,000 higher than your mortgage. Of course you stopped paying. If you had the opportunity to be bailed out like banks, you might have continued, but you were deemed too small to support as opposed to too big to fail like the BANKS. The bank threatened foreclosure, then disappeared. Why? Because they don’t want to take a pink elephant back that was worth $750,000 with a loan balance of $950,000.
Loans Are Not Being Re-Negotiated
If you’re that same bank, why renegotiate under mark to market? If you do, you’re right back to having to declare the property as a massive write-down. Looks horrible on a balance sheet.
No, if you’re a bank, just ride it out; you got your hand in government daddy’s pocket anyway and he’s not gonna let you fail, even though you are a spoiled little prick who raises interest rates to 30 percent on credit card debts because your lowly individual customers are one day late on the credit card payments!
A False Sense of Security
So everything is stable these days; banks look healthy, the stock market is up, and Prince William looked great at the wedding. Onnnkkkkkk! Prince William is cool, but banks are treading water and the stock market’s about as stable as my blood pressure at an IRS audit.
Mark to market may have saved banks in the same way a life preserver would have saved Al Capone had he been a passenger on the Titanic. Notice to Banks: Your underlying assets aren’t worth what you’re showing on your books. They’re not even worth half! I wish I could keep my records the way you do. Then again, I’m too small to save and you’re too big to fail.