So now the wealthy and powerful of Wall Street are to be allowed to decide how much the trash in their portfolios is worth (and have that worth guaranteed by you and me, natch).

That's thrilling, cause I'm sure that the obvious quid pro quo to the American people will shortly be announced: homeowners will be allowed to set the value of their homes themselves (and have that worth guaranteed by the taxpayer, of course) so that they can sell them and get out from under the water they've been drowning in so far. I mean, it goes without saying that a government so committed to helping average joes at least as much as they help the superrich will be announcing this program any minute, n'est-ce pas?

Listen, I'm not opposed to measures being taken to restore a healthy financial system (though this ain't gonna do it, obviously). But the same question I've had from the beginning of all this has still not been answered: WHERE IS THE BAILOUT SO DESPERATELY NEEDED BY THE TAXPAYERS WHO ARE PAYING FOR ALL THIS?! And where is the outrage as the desperate, voiceless millions are trampled on by their supposed protectors in Washington in their haste to grovel before these destroyers of the economy?

here we go again.

Its going to be interesting when the auditors come in and cannot agree with management on what the vlaue of these toxic assets are. In every quick fix to a crisis the seeds for the next crisis are sown. I think this rule change will only create a bigger crisis in the future

...I would like to point out that mark-to-market accounting rules are not exactly a good idea. Forcing assets to be valued based on the whims of the market can create bizarre fluctuations in corporate balance sheets based on day-to-day changes in the market, even when the assets being valued pay out a steady flow of cash (and therefore ought to have a relatively stable value). Now, in the case of the bad mortgage securities, this doesn't really apply, since the real variable is whether or not they'll still be paying tomorrow (which is why the market doesn't want them).

I also think it's important to point out where mark-to-market accounting rules came from. Before I tell you all, does anyone care to guess?

OK, time's up. If you guessed "An attempt by Enron to manipulate accounting rules to their own sleazy advantage," you're correct! Yes, it was Enron that brought us mark-to-market accounting rules. When they asked the SEC to switch to mark-to-market, the SEC said, "Wow, we've been trying to get companies to do that forever!" And they went ahead and made the change. This allowed Enron to record massive amounts of future profit on their books as part of quarterly earnings reports (this is what initially made Enron look so good to the stock market). Then, when the expected future profits didn't materialize, they had to take huge hits to their bottom line. (As an interesting aside, Enron also helped pioneer the use of securitization on assets that should absolutely not be securitized. In fact, the current crisis mirrors Enron incredibly closely, from the rampant securitization to the lack of concern about risk to the absurd excesses of the overpaid executive culture--I guess that means Enron was ahead of its time.)

So no, this accounting change doesn't solve the underlying economic problem, as Wall Street has been dishonestly claiming it would. But it does eliminate a rule that should never have been put in place to begin with, so I'm pleased to hear that they've made the change.

I pointed out in an earlier post that illiquid markets cannot provide valid pricing information. You need to study the differences in pricing between monopoly and monopsony situations to begin to understand the mechanism.

You also exhibit a fair degree of accounting non-comprehension. The FASB rule on mark-to-market, which in general is a good one, sought to ensure that a firm's assets were accurately valued for financial accounting purposes. It also assumed that there was a liquid market for those assets.

There is another dynamic going on here however. We own a bunch of Muni's. If I was a business, I'd have to write down the value of our bond holdings because the sale price of the bonds has dropped - let's say to $990. This would be important if I wanted to use the bonds as an asset to borrow against or if I needed to raise cash for some other purpose. But the bond in question continues to pay me exactly the same quarterly dividend. And, if I hold the bond until it's called in, I'll receive $1,000 for it, not the $990 I could get on the open market. Thus a drop in bond value affects my ability to borrow but not the end game value of my bond. The banks are in a similar situation except that when a bank's liabilities exceed its assets it's called bankrupt. But if its assets are undervalued in the long run, is it bankrupt?

Bankrupt future generations with a crushing amount of national debt in order to give huge bailouts to greedy bankers with no strings attached to govern how they spend the money.

"And, if I hold the bond until it's called in, I'll receive $1,000 for it, not the $990 I could get on the open market. Thus a drop in bond value affects my ability to borrow but not the end game value of my bond."

What about inflation?

The endgame "value" of the bond changes--it's just the FACE VALUE that doesn't.

Now because I'm no accountant and no super-finance gooroo, I defer to your analysis, but given the existence of the discount rate, I think you must've missed a variable or something.

I understand why it makes little sense to mark these toxic assets to a panicked market, but it also makes little sense to put your head in the sand and make up numbers. The corporations that use this new value estimation scheme should be required to report both their estimates of the true value of the assets, as well as the current marked-to-market value. That way regulators and investors could see both the "optimistic" and "pessimistic" scenarios and act accordingly.