I welcome you sending me what you think the best links are on the anti-SFAS 157 side of the argument. I think I have answered most of them in the past — I typically don’t link to those I disagree with, but I will this time.

And, I regard you as a friendly acquaintance on this and other matters. I don’t like most of the arguments on the anti-MTM side, but most of those expressing such opinions are honorable people that I have some respect for.

So, let’s have at it. Hey, even one of the principals of my firm vehemently disagrees with me on this… this is an interesting controversy.

My interpretation of recent policy discussions is that your concerns have been addressed. It is possible to provide plenty of information in footnotes without the hit to regulatory capital.

If we want to see a strong economy, and I know that you do, there is some level of lending consistent with that objective. The mis-timed implementation of FAS 157 has had a pro-cyclical effect, reducing lending at WARP speed. Qualified borrowers should be able to get commercial loans, home loans, auto loans, and student loans. We are killing ourselves with these accounting rules.

I do not mind if investors look at the reports from banks and decide that there are risks. That is their right. Instead, we have forced many institutions to place unrealistic, pseudo-market values on performing assets.

I would be more convinced by your opinions if you specifically engaged the writings from Tom Brown and crew, Bill Isaac, Bob McTeer, Brian Wesbury, and others who have shown very concrete examples of where mark-to-market is misleading.

Just a thought — and I certainly do not “detest” you if you disagree!

Jeff

Would you please consider posting a general article on what happens when an insurance co. goes into receivership?

I just found out my dad has an annuity with Shenandoah. I know you won’t be able to give specific advice (and I’m not asking); I’d just like to try to understand the issues.

Thanks,
Rich

If this proves one thing, it is that Congress has no place in accounting. The idea Congress-critters are pushing — that changing the price at which a distressed asset is carried on a balance sheet somehow makes it less distressed — is offensive. If they think that investors and analysts won’t make adjustments for this, they are dumber than they look and sound.

Accounting transparency is important for investors. Any loss of transparency translates into larger discounts investors must use to value financial assets.

As you mentioned, changing the carrying value of assets won’t affect cash flows. I wonder if the decreased transparency will ultimately mean that investors place a larger emphasis on DCF valuations than on relative value analysis (as they won’t be able to trust those industry ratios as much with the free-for-all accounting Congress is inviting).

I think one of his big problems is that he thinks like an academic and his unexamined assumption is that since “we” are all in this together, all of the players will act for the greater good and not use the crisis as an opportunity for profit–case in point, AIG. If he does not understand that the traders (CDS writers) at AIG were essentially given a free pass to continue their lousy trades for the intentional or unintentional benefit of their counterparties by the government’s effective guarantee of AIG’s operations, it is because he would be astonished that anyone would have the chutzpah to continue the same actions that got them into trouble after they had been discovered. But since there was no punishment for bad trades (and in fact, since many of the participants at AIG lost a pretty penny on the fall of the stock price)the clear message was that now was the time to get paid while they still could. Perfectly understandable from a streetwise perspective, but it would not fit in well with academic economic theory and would therefore be discarded (see Kuhn).

In this matter he is a bit like the captain of a ship who expects the crew to keep bailing after a leak has sprung. He doesn’t realize he’s not in charge of the USS Enterprise but rather at the helm of the Queen Anne’s Revenge.

Good point on Bernanke. Indeed, that interview on 60 minutes, and the fact that he was so willing to give one in this market, did create a bit more sympathy. More than anything else though, it made me re-think the way the Fed functions. No doubt that the reassurance about the recession ending is a bunch of “happy talk” to try and spur investment.

Also, I wouldn’t say that having the USD and Gold trading together is a case of a deteriorating global economy… though it certainly seems that way. Do you think that this pairing will decouple any time soon?