I rarely agree with Holman Jenkins. But his column in today's Wall Street Journal makes an important point on the mark-to-market debate:
Now comes Warren Buffett, a big investor in Wells Fargo, M&T Bank and several other banks, who, during his marathon appearance on CNBC Monday, clearly called for suspension of mark-to-market accounting for regulatory capital purposes.
We add the italics for the benefit of a House hearing tomorrow on this very issue. Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It's not so fine for regulatory purposes. It doesn't just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform.
Most of the calls for suspension of mark-to-market are really for regulatory purposes for addressing capital adequacy. The problem is that such a suspension affects both regulatory and disclosure purposes. As such, it leaves investors in the dark and hinders the operation of the free market -- ironically something that the proponents if such a suspension claim as their guiding principle.
Jenkins's column makes clear what the advocates of the mark-to-market really want: regulatory forbearance on capital standards. If that is what they truly want, there are a number of other -- more straightforward and transparent -- ways to achieve that goal. These more direct methods would make clear that this is an emergency action that can be clearly monitored to determine when the emergency situation has eased.
Otherwise, if the mark-to-market advocates won't own up to regulatory forbearance as their goal, then I don't know what they really want to accomplish -- other than finding a way to pull the wool over investor's and the public's eyes as to how bad the situation really is. If that is the case, I hope policymakers will resist this attempt to return to the "cook-the-books-if-we-can-get away-with-it" mentality that got us into trouble in the first place.
Well all of this talk about regulatory, transparency, ect is all a
bunch of nonsense. In order for that to happen, you must have one that is trustworthy overseeing the activities. It is unfortunate that
today there is no such person. Greed has infected every aspect of life
in America, from the top to the bottom. Banks have lied, manipulated,
and cheated consumers and continue to do so. No matter what is done, they will continue, just in a different manner.
Warren Buffet is a man among fools, if nothing else, listen to him.