Miller: Dump the Mark-to-Market Rules

New Voices

David Malpass puts the problem quite well in a paper on RealClearMarkets (revised today on Forbes.com):

The new mark-to-market rules are creating capital shortages by valuing assets as cautiously (meaning low) as possible, without a reasonableness test.

The mark-to-market rules discourage takeovers (the bane of short-sellers) by forcing prices for post-merger assets to be lowered overnight (when reasonableness would argue that their value would increase due to the deeper pockets of the acquirer).

The astute bank analyst Robert Albertson, featured on yesterday's Kudlow & Company, has a great summary:

The combination of rating agencies and mark-to-market accounting is proving to be a very dangerous cocktail that is pushing arguably solvent companies into insolvency. The problem is that they are financial companies that provide liquidity to the economy. So while we may be solving some issues in the short term for that, I think we are threatening ... the liquidity of the economy.

Albertson again, replying to a Kudlow question about "fair value" and mark-to-market accounting:

It is a big issue, because everyone is trying to be precisely wrong.

Indeed! What good is it to have a precise measurement of the wrong thing?

Ned Riley, founder and CEO of Riley Asset Management, also weighed in on CNBC:

The 157 rule should be suspended. It was developed during a calm period. It was not developed during a period when fire sales were going on and assets were being marked down to an unrealistic price. We forget that some of this stuff is worth more than what they are going to pay for.

These are only the latest analysts to recognize the FAS 157 rule as an important contributor to the problem.