Thursday, February 5, 2009

Mark to Market Suspension?

The market rumor this morning: Mark-to-market accounting will be suspended.

This rumor is consistent with the current bailout rumor of gov't purchase of assets. If the government were to buy assets below the banks carrying value, then the banks will have to take additional write-downs and would require more capital.

By suspension of M2M, then the gov't purchase can occur below carrying value, but the banks don't have to treat that purchase as a new valuation for their crap. Solvency is therefore maintained without new capital being injected. (ha ha).

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1 comment:

UrbanDigs said...

its an awful idea that will restrict private sector investment and delay restoration of confidence in our banks and corporations.

I mean, if you suspend M2M accounting rules, how in gods name will you know the liquidation value of a corporation that goes bankrupt?