More Mark to Market Accounting

Below was posted in the comments section on the mark to market accounting by a friend who works at a major investment fund and who used to work for FASB. Thought it should be made its own post.


One more item for you--and believe me around here I am in the minority--MARK TO MARKET IS NOT NEW!!!!!!!! It's been around for 15 years.

The only "new" accounting standards are
1) FAS 157 which is a definition of fair value intended to beat people over the head because they were ignoring the literature and
2) FAS 159 which is an OPTION to fair value debt for companies not required to do so but who would like to. The option part is weak, I agree, but since they can elect it instrument by instrument I am sure all the newer instruments aren't being marked anyway...

And I still haven't heard what value are they proposing using. Historical cost would certainly aid investors...

It makes complete sense that an overleveraged market without alignment of incentives is the fault of the accountants. If we had just let them lie to their investors, the investors would still be too stupid to have figured it out and we'd all be just fine...poor logic and I am disappointed to see so many highly intelligent investors succumbing to it.

Of course, it's always good to question our own biases...