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Overnight Open Thread

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3 wood2/25/2009 4:33:46 am PST

re: #285 MandyManners

Hi Mandy. “Mark to market” is a requirement that the banks value assets on their books based on whatever their market value is at the moment. The problem with this is it makes you overvalue assets in a good economy and undervalue them in a bad economy.

Imagine that you had to sell your house by the end of today, and everyone knew it. You’d be lucky to get 40 cents on the dollar for the property. But if you could sell it over the next few months, the price (value) you get would be much higher.

This requirement if “mark to market” if forcing banks to write down big losses based on that pricing mechanism, even on loans that will end up being good in the long run. This financially damages the banks and makes them not want to lend anymore.

If we just drop the “mark to market” stupidity and go back to what we used before that, which was discounted cash flows, this banking problem would be cut in half at least, and the banks would be willing to lend again.

But Geithner sticks with this insanity, I believe, cause he does not know what else to do.

It’s an obvious move to make and the fact that he does not do it is speaking loudly to the market that he is in over his head.