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Mark-to-Market Rules - Worsening the Credit Crisis?

With Citi being forced to seek the help of the U.S. government once again, it is apparent that banks will continue to feel the effects of a deteriorating housing market for some time to come.  While the viability of Citi’s Universal Banking model is being debated, it is becoming increasingly clear that, regardless of Bank-type, mortgage-backed securities are drowning our financial institutions in a sea of red ink. 

Many question whether this deluge of losses is actually necessary.  Bankers are pressuring regulators and lawmakers to make adjustments to FAS 157, the mark-to-market accounting rule in the US.  Put in place in response to the Enron crisis (Enron overvalued its assets to the point of bankruptcy) mark-to-market accounting requires corporations to value asset at their "fair value"; the price the asset would command on the open market. 

Read more on the Think Flat site...

Posted by Balaji Yellavalli on November 30, 2008 1:47 PM |

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