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Mark-to-market applies only where the value of an asset is at issue. If, for instance, you want your insurance company to have a minimum value for its assets, t

by dpatru 18y ago

Mark-to-market applies only where the value of an asset is at issue. If, for instance, you want your insurance company to have a minimum value for its assets, to insure that they can pay out in case they need to, then you don't care what that asset is earning. All you care about is the value of that asset when sold, so that the insurance company can use that money to pay off its obligations to you. Suppose I offered you $10,000 worth of stock in AIG as collateral for a $10,000 loan. When the value of that collateral goes down, it's fair for you to call the loan, even if AIG is still making money and distributing dividends. These is the way that a bank treats its own customers who put up property as collateral, but when banks themselves are putting up collateral, they want to operate under different rules.

anamax 18y ago
> Mark-to-market applies only where the value of an asset is at issue. The value of bank and insurance company assets are always an issue. > Suppose I offered you $10,000 worth of stock in AIG as collateral for a $10,000 loan. That's a different situation because (as I understand it), the "collateral" was performing loan portfolios. I agree that the market price for those porfolios is relevant but does it really make sense to immediately declare an institution insolvent and all that implies when buyers take a holiday? There was some stock involved in many of these cases, but it was the stock of Fannie Mae and Freddie Mac. The US govt gave tax and other preferences to regulated institutions that held Fannie and Freddie stock as assets. This pretty much guaranteed that a lot of them would take a huge hit when Fannie and Freddie went down.
joe_the_user 18y ago
The danger of "Mark-to-market" is that one market decline can set off another which sets off another and pretty-soon you have a world-wide-financial collapse (oh, perhaps I'm exagerating...). The individuals who create contracts which involve mark-to-market values might not care about these contract's potential to set off systemic collapse. The state or the regulators or "the people" jolly-well ought to care.

by dpatru 18y ago

anamax 18y ago

> Mark-to-market applies only where the value of an asset is at issue. The value of bank and insurance company assets are always an issue. > Suppose I offered you $10,000 worth of stock in AIG as collateral for a $10,000 loan. That's a different situation because (as I understand it), the "collateral" was performing loan portfolios. I agree that the market price for those porfolios is relevant but does it really make sense to immediately declare an institution insolvent and all that implies when buyers take a holiday? There was some stock involved in many of these cases, but it was the stock of Fannie Mae and Freddie Mac. The US govt gave tax and other preferences to regulated institutions that held Fannie and Freddie stock as assets. This pretty much guaranteed that a lot of them would take a huge hit when Fannie and Freddie went down.

joe_the_user 18y ago

The danger of "Mark-to-market" is that one market decline can set off another which sets off another and pretty-soon you have a world-wide-financial collapse (oh, perhaps I'm exagerating...). The individuals who create contracts which involve mark-to-market values might not care about these contract's potential to set off systemic collapse. The state or the regulators or "the people" jolly-well ought to care.