"FASB deserves enormous credit for acknowledging that the mark-to-market accounting rule exacerbated panic-selling in a downward market. This new guidance is an important step to adding more stability to the market, and fixing the structural problems that prolonged this financial crisis."

Gingrich on Mark-to-Market: Right from the Start

Since the beginning of the financial crisis, Former Speaker of the House Newt Gingrich has advocated a suspension and replacement of the mark-to-market (fair value) accounting rules. He argued that this simple rule change would immediately inject liquidity and stabilize the markets, and could have reduced the need for such a large bailout bill.

September 21, 2008

First, suspend the mark-to-market rule which is insanely driving companies to unnecessary bankruptcy. If short selling can be suspended on 799 stocks (an arbitrary number and a warning of the rule by bureaucrats which is coming under the Paulson plan), the mark-to-market rule can be suspended for six months and then replaced with a more accurate three year rolling average mark-to-market. - National Review Online, The Corner

LIVE LINK: http://corner.nationalreview.com/post/?q=ZGE5MmE0YmRiODA3YTRiNzFlN2FmNDU5N2I0ZDc3YTE

September 28, 2008

There's a pretty good argument that at least between half and 70% of this problem is an accounting rule called mark to market and I think it is fascinating that they could have suspended that at any point. The European Central Bank warned about this. Two Chicago economists at a bank Thursday said it's an enormous part of the problem... What we're being told by Bernanke and by Paulson is they're going to pay more than the current market value for these securities because these securities are really worth more than the current market value. Now that tells you there is something fundamentally wrong about the way we're measuring the current market value. ABC News, This Week

LIVE LINK: http://abcnews.go.com/video/playerIndex?id=5903025

September 29, 2008

"While Congress and the White House consider next steps, the Treasury and its fellow regulators should follow their own counsel and take without delay the one regulatory action within their discretion that can help immediately to calm markets and dramatically reduce the taxpayer risk in any necessary government intervention: suspend mark-to-market." - Forbes.com

LIVE LINK: http://www.forbes.com/home/2008/09/29/mark-to-market-oped-cx_ng_0929gingrich.html

September 29, 2008

"So my challenge to the [Bush] administration is simple. Suspend tomorrow morning the mark-to-market requirement. Replace it temporarily with a three-year rolling average. You will overnight explode the amount of liquidity on the street. Companies will immediately have relief all across America. It will be a stunning effect. And you will have bought plenty of time to now think through in a better way what was so badly designed by Secretary Paulson and that, frankly, could not be salvaged."- On the Record with Greta Van Susteren

LIVE LINK: http://www.foxnews.com/story/0,2933,430429,00.html

September 30, 2008

"There are innumerable experts, intellectual experts, practitioners, former government officials who collectively agree that if we would suspend the current accounting system which has driven down prices artificially... you would have, in a matter of weeks, a dramatically more liquid economy without having centralized power in the Treasury in Washington D.C." - Speech at the National Press Club http://newt.org/tabid/102/articleType/ArticleView/articleId/3763/Default.aspx

Mark to Market (Fair Value) Background Information

Established in 1993, and amended last November, the mark to market accounting rule was intended to provide a snapshot of asset values during a less volatile market.

In the last year, companies - forced to value or "mark" their assets to the current market rate - were forced to write down their values to match the slumping market.

Companies have seen their assets, such as mortgaged back securities, drop in value overnight. Forced to raise more credit, many companies have faced insolvency.

On September 30, 2008 FASB issued a clarification statement, recommending that auditors estimate values based on discounted cash flows and other measurements to determine asset values. In particular, the FASB ruling acknowledges that mark to market accounting has disrupted normal pricing systems, just as Newt Gingrich suggested in the days prior:

"The results of disorderly transactions are not determinative when measuring fair value. The concept of a fair value measurement assumes an orderly transaction between market participants. An orderly transaction is one that involves market participants that are willing to transact and allows for adequate exposure to the market. Distressed or forced liquidation sales are not orderly transactions, and thus the fact that a transaction is distressed or forced should be considered when weighing the available evidence."

LIVE LINK: http://www.fasb.org/news/2008-FairValue.pdf

Today, April 2, 2009, FASB issued a recommendation that when the market is not functioning properly, firms may use more flexibility in applying mark to market to value their assets.