Should mark-to-market accounting be suspended?

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I'm inclined to agree with Brian's comment.

I like debating whether or not it should be suspended because you can then argue if it's beneficial or not or maybe even that it is necessary, but right now it's exacerbating the crisis or even, it helped cause the crisis.

Newt has some good (well maybe not good, but substantive) commentary on the "mark to market" issue. He says we need to abandon the rule.

And Economist Brian Wesbury agrees.

I'd like to change my suggestion to:

Should mark-to-market accounting be suspended?

Thoughts? I think this is very relevant

I agree Eric, we should get something up. How about:

Has mark-to-market accounting exacerbated the financial crisis?

or more generally...

Should mark-to-market accounting be abandoned?

(maybe biased)

not sure how to do a "is it beneficial" issue. its one of those tough do-the-positives-outweigh-the-negatives issues that are hard to word. any thoughts from others?

We should approve this issue soon, as it is in the news, being debated on whether it is making the credit crisis worse.   Many interesting and opposite opinions from many public figures (including McCain) and organizations in a recent article from the the Economist:

SO CONTROVERSIAL has accounting become that even John McCain, a man not known for his interest in balance sheets, has an opinion. The Republican candidate for the American presidency thinks that “fair value” rules may be “exacerbating the credit crunch”.

Ben Bernanke on mark-to-market:

"It's also true in the current context, that mark-to-market accounting has been sometimes destabilizing in that sales of assets into very illiquid markets had led to reductions in prices, which have caused writedowns which have sometimes caused firesales, and you get into an adverse dynamic which has caused problems in some of our markets," Bernanke said in a question-and-answer session before a business group,

On balance, he said mark-to-market accounting has been a positive influence for investors, but valuations should be determined during normally functioning, stable markets, not times when assets are illiquid.

Translation: when markets are in a frenzy and nobody really knows what the true and fair price of an asset is, mark-to-market accounting 1) can be difficult and 2) can exacerbate the problems

And an article from Seeking Alpha that sheds some light on the issue.

is there any sample evidence that might help us phrase this better? Much of the wording presented seems ok, but i don't know enough about it and think it'd be good to go to some 3rd party resources

The issues here is this:

Mark-to-market is "good" because it theoretically helps companies be more transparent about what the "fair" value of their investments are. (As an example, if a company owns 100 shares of a stock worth $50 in the open market, under mark-to-market they disclose the investment as worth $5000 on their books, not the original purchase price)

Mark-to-market is "bad" because it gives a lot of wiggle room for companies to estimate the worth of some assets (allowing for serious number fudging like in the Enron situation, and like with many investment banks recently).

Maybe:

Does a mark-to-market accounting standard give investors a clear picture of the assets of their company?

Does mark-to-market accounting help economies facing a financial crisis?

Maybe I'm completely off the "mark" on this one... Economics terminology isn't my personal forte... but I'm trying to offer some constructive wording suggestions...

I think we need to define "blessing or a curse" according to who. Can you elaborate more about what the debate is? Who thinks its good, who thinks its bad, and possible some public figures weighing in or editorials about the issue. I can imagine this issue was big during the Enron problem but I just havent seen much these days, maybe I'm wrong.

Lets rephrase the issue as follows:

"Is fair value accounting a blessing or a curse in a financial crisis?"
 

Mark-to-market is the essence of fair value accounting and the issue is constantly in the news everyday, and its what's driving the huge losses reported by banks, which are claiming for a change in this accounting principle. Lots of debate, and strong opinions on both sides of the issue.

If we want to get this one going we need to say to whom it is beneficial. As Enron showed, mark to market can be beneficial (when nobody knows that they are making absurd valuations of their instruments) to a company until its not (when the feds catch on).

Maybe: Is "mark to market" accounting a useful/valid principle?

Not sure if that is really a great issue either, but this needs to be a little more explicit I think

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