WTF am I doing?

life…it’s complicated and random. very random.

Finally…the SEC’s made a decision I can agree with…

photo from Google Images Search

photo from Google Images Search

Alright I might as well come out and admit that I am a dork. nerd. geek. whatev you want to call me I don’t care…as long as it’s not ignorant or disrespectful I’ll take it as a compliment. I read the Wall Street Journal everyday and through my classes I also have an online subscription for FREE…which is really nice.
Anyways…when the first bailout was being discussed in the House, there was an article in the WSJ entitled, “Momentum Gathers to Ease Mark-to-Market Accounting Rule.” Some 60+ members of Congress had written the SEC in support of a proposed suspension of the accounting rules stating that it would reduce the cost of (at that time) potential bailout.
Now…I am only a college student (studying mathematics, economics, finance and accounting) but even I could see that a suspension would simply be a temporary fix with huge potential to make the whole financial industry’s situation even worse than it was at the time. And to be honest, the fact that some 60+ members of Congress WROTE in support of a suspension left me with the feeling that “dumb and dumber” were in charge.
Now for anyone that doesn’t know….the mark-to-market accounting rules basically forces a company to write down the value of their assets to the assets’ current market value instead of at the price the company paid for said assets. So, for instance, many banks invested heavily in various financial securities (like mortgage-related ones) but the securities market have all but dried up in the last six months, and so the banks have had to write down the value of their securities assets to the current dirt cheap market values. That, in turn, creates a even greater balance sheet problem especially for those banks and companies which are already struggling without reducing the value of their assets.
Many people, such as those 60+ members of Congress, would say that it sounds like (at least on the surface) like a bad rule but at the it provides vital protection for investors. Everyday we hear about a new troubling company attempting to court a potential investor to provide an immediate source of capital or to buy the company…if this rule were to be suspended it would really put those investors at a great disadvantage with a lack of critical financial information.
But in the spirit of real Americana the SEC is expected to pass the buck on providing real guidance on how to apply the rule in our current market to the FASB.

(shakes head) It’s like when I was little and my mom would tell me to put my jewelry away neatly in my jewelry box but I never did. Eventually I would find myself with a tangled mess of necklaces and bracelets that seemed to take forever to unwind and straighten out.
As much as I hate to say it, I feel like the government’s only just opened the jewelry box and discovered the problem. We haven’t even begun to untangle our mess of financial, economic and poor business decisions.

Link to “Mark-to-Market Likely to Remain”

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December 8, 2008 - Posted by | opinion, thoughts | , , , , , , , , , , , , , , , , , , , , , ,

1 Comment »

  1. Agreed. It is frightening what people propose as solutions.

    One can’t change the colour of the sky by redefining the meaning of the word “green” to match the current blue colour of the sky.

    For years the big corporations have been desperate to delay losses from hitting the Income statements/Statements of Comprehensive Income. So they were allowed to use M2M. Now that came crashing down and *now* they say they want the exact opposite: Losses should gradually filter through the I/S instead of the M2M-style dumping. Hypocrites.

    I have yet to hear a sensible alternative to FV/M2M. If they don’t want to value assets at market value (i.e. dirt cheap), then what??? Magic8ball-method perhaps?

    /me makes mental note to compare USGAAP-style M2M and IFRS-style M2M

    Comment by havocxphere | December 8, 2008


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