Mark to Market Accounting - a disaster
As we watch Freddie and Fannie slowly fade into non-existence I would like to take this opportunity to point the finger..... mark to market accounting. The entire credit explosion and subsequent contraction we are experiencing now can be attributed, at least in part to mark to market accounting.
As the values increased, earnings grew and borrowing occurred on those "paper gains". As the values decrease, earnings plummet and lending is retracted and foreclosures ensue.
Income statements and balance sheets were not subjected to the real-time valuations of economic activity and the business cycle. Yes, the business cycle still exists and valuation of real assets change during the business cycle.
AICPA you need solve this asset valuation problem before anyone believes the numbers.
As the values increased, earnings grew and borrowing occurred on those "paper gains". As the values decrease, earnings plummet and lending is retracted and foreclosures ensue.
Income statements and balance sheets were not subjected to the real-time valuations of economic activity and the business cycle. Yes, the business cycle still exists and valuation of real assets change during the business cycle.
AICPA you need solve this asset valuation problem before anyone believes the numbers.
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