Sunday, April 5, 2009 EST

Lets sum up what mark to market accounting rules really mean.

You own a home and you want to find out what is worth. What do you do? You check what homes are selling for in the market. Right now most home owners would not be very happy because the value of homes have dropped dramatically. Once you have this figure your home is now valued fairly in the marketplace, or Mark-To-Market (prices).

The  Financial Accounting Standards Board (FASB) wants to suspend this rule giving banks the ability to use "best judgment" or various "models" to value the assets since the market place has reduced the value of the mortgages banks hold. This "cooking of the books" is good for the banks since the bank's portfolio will increase in value even though in the open market the banks would not get the over inflated price. Where do we draw the line from fantasy to reality?

The FASB suspending this rule is like the old saying of the "wolf watching the hen house." This is nothing less than "cooking the books." If the banks are allowed to cook the books than each tax payer should be able to cook their tax returns and reduce their income by the amount that was lost in their home values and 401k.

A person responding to an article on the New York Times said it very well...

"The houses on my block has fallen 30% in value since I bought mine. Now when I walk in the bank for refinancing, can I argue that since I intend to stay in the house for life and the bank may as well intend to hold the loan for as long, the house should not be valued at today’s 30% off “distressed” value, instead, they should be valued at 100% of original price because the expected cash flow (me staying in the house and continuing paying the original loan amount) is 100% of what is originally expected. Now tell me why the bank won’t agree."  — Posted by curious bunny

The hope is that suspending Mark-To-Market will push the banks to start lending again. It seems interesting that suspending this rule comes at a time when the FED will start buying these "Toxic" or using the new term "Legacy" assets from the banks. Can you say "more bonuses for Mr. Banker?"