Mark to Market Changed for Now
One of the accounting rules that has created this “crisis” is called mark to market. What that means is that securities are to be valued at the price they could be sold for at market. It allows a company to recognize that its investments have appreciated, or sadly, depreciated in value.
The credit market got tied up when major players refused to buy at prices they viewed as too low. If you cannot sell a security, it has zero value. Suddenly, banks and other institutions held massive amounts of mortgage securities with no apparent value.
As has been demonstrated here, they do have a value, but the refusal to buy and sell at those values shut the credit market down.
Companies went bankrupt due to their losses in securities marked to market.
The SEC is “clarifying” the mark to market rules, to allow some leeway. The primary change will affect securities intended to be held, so that the vagaries of the market day by day do not necessarily affect securities held for years.
This is a sensible modification. Securities based on mortgages have a value, despite the refusal of the players to make a market. That will change in a month, and no company should be penalized by accounting rules for the momentary oddities of the marketplace.
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