tag:blogger.com,1999:blog-8590162861581264420.post8941032009410738775..comments2023-10-06T06:59:10.583-04:00Comments on Thoughts from Goldrock Capital: Is Mark-to-Market a Good or a Bad Rule?SDavidRamhttp://www.blogger.com/profile/14538367108960964416noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-8590162861581264420.post-84818568319167873072009-03-15T14:34:00.000-04:002009-03-15T14:34:00.000-04:003 points. 1) your example of an apartment in miam...3 points. 1) your example of an apartment in miami beach is not 100% accurate. A bond that AIG or a bank holds on their books has cash flow (monthly or quarterly) so just because right now we find ourselves in an unusual environment and the value of that particular bond is extremely low (because their are no buyers) does not reflect the true value of that bond. So to mark it to 20 cents on the dollar, or wherever he last trade was does not make sense (even though that is what MTM requires) 2) mark to market was not the only thing that pushed AIG to the brink. AIG was massively undercapitalized for the amount of risk they were taking and it finally caught up to them. Their CDS portfolio especially. (basically writting insurance with little or no reserves set aside) Their thin capital led to rating agency downgrades which then led to AIG being required to post a lot more collateral. 3) Your 2 alternatives - or opinions on MTM are too limiting. I think you can find a middle ground. Lets require all financial institutions to mark their assets to market, but not hold that against their capital. In other words - the reason the stocks have gotten destroyed is because they look undercapitalized when marking down their assets, but if the regulators do not require the company to hold that mark against their capital then - voila! they are not undercapitalized anymore. The companies would still of course be required to show MTM values etc. allowing investors to determine the underlying value of the stock. This solution would effectively do away with shorting these stocks to oblivion on the assumption they are going to be required to raise more (dilutive) capital.davidsbrohttps://www.blogger.com/profile/10036017092627538248noreply@blogger.com