Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

06 April 2009

Insane Mark-to-Market Finally Killed

Congress has finally killed the insane mark-to-market assets evaluations which the Democrats imposed through the Sarbanes - Oxley accounting regulation bill in the aftermath of the Enron collapse. This, in so far as a banking and financial crisis befell us, was more the cause of company failures and potential failures than even the inflated home and real-estate values which began the crisis. Yet correcting this very transparent problem, after much time with their fore paws up their Donkey hind quarters, took a backseat to all kinds of posturing and claims that the market was too little regulated. It also took a backseat to executives flying corporate jets and managers being paid bonuses.

The mark-to-market provision, coupled with threatened law suits against accountants who did not rigorously apply it, meant that an asset had to be valued at its very immediate market value. If the asset was illiquid, it was worthless. So, how much is your home worth? You have one day to sell it. How much do you think you can get for it in one day?

Of course this is nonsense. But there is hardly any nonsense too transparent that Congress will not buy into it, if they can put on a grandstand show by going along with the nonsense. That they were certainly able to do following Enron's demise. But, they could have quietly eliminated this part of the deadly nonsense long ago and prevented the current crisis. But, they were asleep at the wheel as usual and well, that fore paw was pleasantly occupied.

The problem of valuing somewhat illiquid assets held by banks and other financial institutions at much lower than rational values is that these institutions can commonly loan out many times as much money as the value of their assets. If the asset is artificially undervalued, then the amount of loans must drop by about 9 times the amount of the undervaluation. It is also ridiculous to tell a bank that an asset is nearly worthless when it is providing a healthy stream of income in the form of mortgage payments or other loan and interest payments. Yet, despite that healthy income, the banks were crimped in how much they could loan by the mark-to-market provision of the absurd Sarbanes-Oxley accounting act.

The end of mark-to-market and a vote in the Senate which will make it unlikely that Congress will pass a carbon cap-and-trade tax-mandate is the reason the stock market went up last week despite the fears of the federal government choosing business managers as they did for GM and as they threaten to do to banks and financial institutions.

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