economic situation is dire

[villal]

Let's be honest: you'll never win the lottery.

On the other hand, the chances are pretty good that you'll slave away at some miserable job the rest of your life. That's because you were in all likelihood born into the wrong social class. Let's face it -- you're a member of the working caste. Sorry!

As a result, you don't have the education, upbringing, connections, manners, appearance, and good taste to ever become one of us. In fact, you'd probably need a book the size of the yellow pages to list all the unfair advantages we have over you. That's why we're so relieved to know that you still continue to believe all those silly fairy tales about "justice" and "equal opportunity" in America.

Of course, in a hierarchical social system like ours, there's never been much room at the top to begin with. Besides, it's already occupied by us -- and we like it up here so much that we intend to keep it that way. But at least there's usually someone lower in the social hierarchy you can feel superior to and kick in the teeth once in a while. Even a lowly dishwasher can easily find some poor slob further down in the pecking order to sneer and spit at. So be thankful for migrant workers, prostitutes, and homeless street people.

Always remember that if everyone like you were economically secure and socially privileged like us, there would be no one left to fill all those boring, dangerous, low-paid jobs in our economy. And no one to fight our wars for us, or blindly follow orders in our totalitarian corporate institutions. And certainly no one to meekly go to their grave without having lived a full and creative life. So please, keep up the good work!

You also probably don't have the same greedy, compulsive drive to possess wealth, power, and prestige that we have. And even though you may sincerely want to change the way you live, you're also afraid of the very change you desire, thus keeping you and others like you in a nervous state of limbo. So you go through life mechanically playing your assigned social role, terrified what others would think should you ever dare to "break out of the mold."

Naturally, we try to play you off against each other whenever it suits our purposes: high-waged workers against low-waged, unionized against non-unionized, Black against White, male against female, American workers against Japanese against Mexican against.... We continually push your wages down by invoking "foreign competition," "the law of supply and demand," "national security," or "the bloated federal deficit." We throw you on the unemployed scrap heap if you step out of line or jeopardize our profits. And to give you an occasional break from the monotony of our daily economic blackmail, we allow you to participate in our stage-managed electoral shell games, better known to you ordinary folks as "elections." Happily, you haven't a clue as to what's really happening -- instead, you blame "Aliens," "Tree-hugging Environmentalists," "Niggers," "Jews," Welfare Queens," and countless others for your troubled situation.

We're also very pleased that many of you still embrace the "work ethic," even though most jobs in our economy degrade the environment, undermine your physical and emotional health, and basically suck your one and only life right out of you. We obviously don't know much about work, but we're sure glad you do!

Of course, life could be different. Society could be intelligently organized to meet the real needs of the general population. You and others like you could collectively fight to free yourselves from our domination. But you don't know that. In fact, you can't even imagine that another way of life is possible. And that's probably the greatest, most significant achievement of our system -- robbing you of your imagination, your creativity, your ability to think and act for yourself.

So we'd truly like to thank you from the bottom of our heartless hearts. Your loyal sacrifice makes possible our corrupt luxury; your work makes our system work. Thanks so much for "knowing your place" -- without even knowing it!

Author Anon

[leviramsey]

For all the talk of tax havens and bank secrecy, the truth is a little more complex:

Money launderers are moved by greed, unlike Jason Sharman, a political scientist at Australia’s Griffith University. Yet with a budget of $10,000 and little more than Google (and the ads at the back of this paper), he showed how easy it was to circumvent prohibitions on banking secrecy, forming anonymous shell companies and secret bank accounts across the world. In doing so he has uncovered an uncomfortable truth for many of the leaders of Group of 20 nations meeting on April 2nd to discuss, among other things, sanctions against offshore tax havens. The most egregious examples of banking secrecy, money laundering and tax fraud are found not in remote alpine valleys or on sunny tropical isles but in the backyards of the world’s biggest economies.

At issue is not banking secrecy as the Swiss once knew it, where discreet men in plush offices promised to take the names of their clients to the grave. This is a more insidious form of secrecy, in which authorities and bankers do not bother to ask for names, something long outlawed in offshore tax centres such as Jersey and Switzerland but which has persisted in America. For shady clients, this is a far better proposition: what their bankers do not know, they can never be forced to reveal. And their method is disarmingly simple. Instead of opening bank accounts in their own names, fraudsters and money launderers form anonymous companies, with which they can then open bank accounts and move assets.

Nowhere is this more prevalent than in America. Take Nevada, for example. Its official website touts its “limited reporting and disclosure requirements” and a speedy one-hour incorporation service. Nevada does not ask for the names of company shareholders, nor does it routinely share the little information it has with the federal government.

There is demand for this ask-no-questions approach. The state, with a population of only 2.6m, incorporates about 80,000 new firms a year and now has more than 400,000, roughly one for every six people. A study by the Internal Revenue Service found that 50-90% of those registering companies were already in breach of federal tax laws elsewhere.

A money-laundering threat assessment in 2005 by the federal government found that corporate anonymity offered by Delaware, Nevada and Wyoming rivalled that of familiar offshore financial centres. For foreigners, America is a particularly attractive place to stash cash, because it does not tax the interest income they earn. Thus with both anonymity and no taxation, America offers them all the elements of a tax haven.

Change may be coming in America, but slowly. In March Senator Carl Levin proposed a law forcing states to identify the beneficial owners of corporations. “For too long, criminals have misused US corporations to hide illicit activity, including money laundering and tax fraud,” said Mr Levin. “It doesn’t make sense that less information is required to form a US corporation than to obtain a driver’s licence.”

Yet a similar bill introduced last year died a quiet death in committee.

America is not the only rich nation Mr Sharman tested. He tried to open anonymous shell companies and bank accounts 45 times across the world. These were successful in 17 cases, of which 13 were in OECD countries. One example was Britain, where in 45 minutes on the internet he formed a company without providing identification, was issued with bearer shares (which have been almost universally outlawed because they confer completely anonymous ownership) as well as nominee directors and a secretary. All was achieved at a cost of £515.95 ($753).

In other cases Mr Sharman formed companies by providing no more than a scanned copy of his driving licence. In contrast, when trying to open accounts in Bermuda and Switzerland, he was asked for documentation such as notarised copies of his birth certificate. “In practice OECD countries have much laxer regulation on shell corporations than classic tax havens,” Mr Sharman concludes. “And the US is the worst on this score, worse than Liechtenstein and worse than Somalia.”

[snowychap]

This paper - The Quiet Coup - is well worth a read.

Written by the former chief economist of the IMF during 2007 and 2008, it comments upon the current financial and economic crisis and draws comparisons with all other crises where the IMF has had to step in.

He talks about the need to break the oligarchies which run economies into trouble and which seem to magnify these troubles as the power of these oligarchies strengthens in times of crisis.

Speaking of the banks, his assessment is that nationalization is the only possible step to restore the financial sector to health as he believes the continual bail outs are not going to be enough to make any organisation healthy only to keep an organisation just about alive until the next bail out. Once nationalized, a proper assessment can be made of the banks' balance sheets rather than the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets. After moving the toxic assets into a separate government entity, the other banks can then be resold to the private sector as clean organisations trusted once again to lend safely (a bit of a gamble, perhaps). His point about how this ought to be done, though, is interesting, he says:

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

[nrogers]

[Santa_Rosa]

^^^ what's that got to do with it??

[Gringo]

^^^ what's that got to do with it??

Nick does seem to have some sort of obsession with the fact that the naughty left wingers were more efficient in their bloodshed than the naughty right winger, but I do think this might be in the wrong thread, probably the wrong forum. As relevent as a fish's bicycle puncture repair kit.

[nrogers]

The point is people are slagging off capitalism, and the facts of the matter are the no matter how bad it is, it could always be worse, much worse, both economically and socially.

Perhaps with your obsession of misinterpreting what I am trying to say Grings, you would have given up by now.

[Clarry]

People can be so thick when it comes to socialism.

[Gringo]

Oooooh bugger

G20 leaders get OECD warning that global trade is in freefall

• Thinktank rejects Gordon Brown's fiscal stimulus package

• Germany and Japan see unemployment soar

• World Bank announces new $50bn programme

World leaders gathering for Thursday's G20 summit in London were warned today by the Organisation of Cooperation and Development that the world economy was shrinking much faster than previously thought and that global trade was in freefall.

The Paris-based thinktank also told the British prime minister, Gordon Brown, there was no room for the type of fiscal stimulus that the prime minister had been touting around the world.

"The world economy is in the midst of its deepest and most synchronised recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade," the OECD said in its latest twice-yearly economic forecasts.

It predicted that in spite of big cuts in interest rates around the world, fiscal stimuli and banking system bailouts, recovery would not come until 2010 at the earliest.

The organisation had warned on Monday that unemployment among its 30 rich nation members was likely to rise by 25m in the current crisis.

Japan and Germany announced big rises in joblessness today: in Germany it rose to 3.5m, its highest since February 2008 and giving a jobless rate of 8.1%, while Japan's rate reached a three-year high of 4.4%. Japan announced a new fiscal stimulus package as it seeks to pull its economy - a big exporter punished by the slump in world trade - out of a deep recession.

Brown said G20 leaders should aim to save or create 20m jobs and must act together to increase the potential impact of their actions.

----

The OECD expects global trade volumes to slump by 13% this year. "International trade is in freefall," it said.

It expects its member economies to shrink by an average 4.3% this year, with the United States contracting by 4%, the eurozone by 4.1% and Japan by 6.6%. It forecasts Britain's economy will shrink by 3.7% - the worst performance since the second world war.

------

"Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks but also reducing opportunities available to them, and frustrating their hopes," said Justin Yifu Lin, the World Bank's chief economist.

The OECD echoed comments made last week by the Bank of England governor, Mervyn King, when he said Britain's worsening budget deficit meant the government had little room to cushion the impact of the recession if it turned out to be deeper than expected.

The government said late last year it expected to have to borrow £118bn in 2009 to cover its deficit but economists now think that number will balloon to £150bn or higher, equivalent to more than 10% of gross domestic product, an all-time record.

[snowychap]

Double bugger

Myners accused of misleading parliament over Goodwin pension

A leading Tory MP demanded today that the City minister, Lord Myners, resign after the row over Sir Fred Goodwin's pension was inflamed by new evidence given to the Treasury select committee.

Sir Tom McKillop, the former Royal Bank of Scotland chairman, today wrote to the committee to insist that "full disclosure" was made to the government and denying that an "elaborate ruse" was deployed to cover up the £703,000-a-year payments to the disgraced former RBS chief executive.

Michael Fallon, a leading Conservative member of the committee, said Myners should quit and accused him of misleading parliament and his colleagues.

In his letter to the committee, McKillop attempted to counter criticisms levelled at him and other members of the RBS board by Myners, who had argued that the bank was wrong to use its discretion to double Goodwin's pension pot to £16.9m.

McKillop takes issue with Myners on almost every one of his criticisms and insists the RBS board had no choice over the size of the pension fund. He said: "There was no question of any discretion to be exercised in relation to Sir Fred's pension and no discretion was exercised in this regard by any RBS director.

"RBS considered itself contractually bound to pay the pension benefits which had crystallised by virtue of its request to Sir Fred to leave the company – but not to pay any more than the proper contractual obligation."

He insisted: "At no stage did Lord Myners or any other representative of the government ask the RBS directors to attempt to alter any of the contractual terms relating to Sir Fred's pensions. Nor did Lord Myners attempt to discuss the matter with Sir Fred, as he did with the payment in lieu of notice."

McKillop's assertions prompted Fallon to tell the BBC's World at One that it "flatly contradicts" Myners "because he told our committee that he didn't get any information about the pension, he didn't ask for information and he wasn't told about it.

"On the contrary, Tom McKillop makes it clear that Lord Myners was told each detail of the pension. He has completely misled the committee and misled parliament.

"Misleading parliament is a serious offence; misleading the public is even worse. The honourable thing to do now would be to resign," Fallon said.

Goodwin's departure from RBS was negotiated on the weekend of 11-12 October when the bank was saved from collapse by an injection of £20bn by the taxpayer. McKillop said that on 2 November, Myners had asked Bob Scott, the RBS non-executive director who chaired the remuneration committee, to ask Goodwin to waive share-related benefits he was entitled to.

McKillop said: "Sir Fred agreed in discussions with Mr Scott to forgo these entitlements on the basis that all other elements of his package would be honoured and would remain unchanged."

He said Myners had been told the pension would be "enormous" and that Scott had told the minister during a conversation on 12 October that the pot would be £15m–£20m.

Myners has already written to the Treasury select committee to try to clarify his verbal evidence. He had told the committee that he made a statement on 5 March acknowledging that he was given an estimate of the pension on 12 October but that he did not know discretion had been used by the RBS board. When Myners appeared before the Treasury committee he appeared to contradict himself, saying he was told on 12 October of the estimated size of the pension but that RBS had embarked upon an "elaborate ruse" to hide the true size.

Myners – who resigned as chairman of Guardian Media Group, publisher of the Guardian, to become City minister – appeared before a House of Lords committee this afternoon.

Neil Roden, group human resources director of RBS, has also written to the committee to explain how Goodwin took a £2.7m lump sum from his pension.

Roden said: "Sir Fred chose to exchange £186,979 a year of his pension for a lump sum of £2,781,317, of which £94,740 was paid from the main RBS pension fund. Sir Fred subsequently indicated that he was willing in principle to repay the lump sum, provided he incurred no tax liability. However, HMRC [Revenue & Customs] has clearly stated tax will be payable on this lump sum even if it is repaid, and as a result the funded unapproved retirement benefit scheme [Furbs], is liable to pay the tax on the part of the lump sum that was paid from the Furbs."

Roden said the new chairman, Sir Philip Hampton, has asked Goodwin "to consider if he is prepared to waive part of his entitlement, and Sir Fred is considering this".

[snowychap]

..

[snowychap]

G20 announce tighter regulation.

US announce looser accounting rules:

US banks stand to benefit from rules change

Large US banks like Citigroup, Bank of America and Wells Fargo stand to receive a surprise first-quarter earnings boost from Thursday’s expected loosening of controversial accounting rules by the Financial Accounting Standards Board.

Wall Street executives and auditors say the accounting watchdog’s likely approval of changes to “mark-to-market” rules could lead to increases of up to 20 per cent in quarterly profits of large commercial banks.

Rushed through by FASB after lender and political pressure, the changes have been strongly opposed by investment banks, investors, auditors and analysts.

The changes will make it easier for companies, including banks, to value assets using their own internal models rather than market prices. They will also only have to recognise a part of any impairment in their profits.

Proponents of the changes, such as Citi, BofA, Wells and their political allies, argue the current regime unfairly magnifies losses by requiring banks to use market prices even though those prices are illiquid and often from fire sales.

Critics say changing the rules would further undermine investor confidence in the battered sector by reducing the transparency of banks’ balance sheets.

The accounting overhaul, they add, counters the US government’s bid to create a liquid market for troubled assets through private/public partnerships.

In comments sent to FASB, the CFA Institute, trade body for more than 80,000 analysts and fund managers, said the new rules would damage the credibility of the rulemaker and US accounting standards generally.

The rules are also being considered by the International Accounting Standards Board which had promised to work with its US counterpart. The IASB softened its own fair value rules last October under pressure from the European Union. Opponents of the change fear Brussels will exert new pressure to get the IASB to follow FASB’s lead.

In a letter in Thursday’s Financial Times, Dutch securities regulator chief Hans Hoogervorst calls political meddling in accounting a “dangerous development”.

If accounting standard-setting is seen as a political process “confidence in the markets will be further undermined”, he said.

Setting themselves up for a big fall, perhaps.

p.s. the IASB has decided today not to follow suit.

[leviramsey]

Mark to market is quite possibly the greatest example of failed financial regulation ever. We're lucky it only came in when it did... had it been in place going back to, say, 2000 or 2002, we'd be in the stone age by now, due to banks being even less capitalized when the shit hit the fan than they were (because they'd be able to carry their assets at the inflated market prices, thus increasing their capital, thus increasing the amount they can borrow...).

That said, repealing it makes the bailout more difficult (because the banks have no incentive now to unload compliant but marked-down assets).

[leviramsey]

The proper prescription indeed

Every time I turn on the TV, it's the same thing: Everybody's moaning on and on about the economy without offering any solutions. People are losing their jobs left and right, and our leaders act like we're helpless to do anything about it! This is the greatest country in the world, and still, none of these eggheads in the government can figure a way out of this mess? Come on.

Fortunately, I have the medicine for what ails us all. It's so simple, I can't believe no one thought of it until I did, just now. Ready?

We build more houses.

There. That's it. It's so obvious, maybe that's why I'm the first one to come up with it. Houses got us into this mess, and by God, it's houses that are going to get us out!

Think about it. We've got thousands of tradesmen out of work 'cause no one is building houses. Plumbers, guys who do drywall, the like—none of them have a job to go to in the morning. If the carpenters don't have jobs, then they aren't buying any lumber. Then the lumber guys don't have any money to buy dresses for their gals, and the dressmakers can't buy cars, and so on down the line.

You see? They need jobs, pronto, otherwise we're going to be sitting on a load of lumber and dresses and cars. So I say, give 'em some houses to build! Then they'd have some money to spread around, and the economy wouldn't be so bad.

Problem solved.

I know what you're thinking: Wouldn't that leave us with a bunch of new houses and no one to live in them? Well, as it happens, with so many homes in foreclosure, there are a lot of folks right now who need a place to hang their hat. Excuse me, did you hear someone at the door? Oh, hello, opportunity. Come on in!

Get it? These people who have lost their homes have no place to live...except for all these brand-new houses! You guys following me yet?

Once we start building these new places and sell a few of them, word will get out, and before you know it, everybody's gonna want one. They'll pay out the nose for these new homes, because that's how these fad things work. It's called supply and demand.

So you'll have these crazy high prices, and the people who took the risk of building the homes will have the money they need to build even more homes. The cycle just keeps repeating itself, and the dough keeps rolling in!

This was working like a charm right up until the whole economy went south, and there's no reason it can't work again.

Of course, with folks so strapped for cash, you may wonder how they're going to get the money to pay for these new houses. That's fair enough. After all, these are people who've had their homes repossessed. They've got terrible credit. So what loan officer in his right mind would give them a $500,000 mortgage?

This is where things get interesting. It's so simple, really, it's genius. You see, normally, when banks give someone a loan, they have to sit around and wait for the money to trickle in one month at a time. What I'm thinking is, that's really no way to do it. You could grow old waiting for a bet like that to finally pay off.

But what if—what if—the banks made a whole lot of loans really quickly, put a bunch of them together in a big package, or bundle, and then sold them to investors for some quick cash? They'd be turning a profit right away, so they wouldn't have to worry so much about whether people could pay back what they borrowed. And they could give loans to anybody—homeless people, kids, immigrants...it wouldn't matter!

You can't lose with this!

I'm telling you, it's the thing that's gonna work. Unfortunately, the powers-that-be in Washington are a bunch of tight-asses who are overly concerned with sustainable growth this, and long-term economic health that. Hey, Mr. Bureaucrat, if you'd get your nose out of the banks' business and let them make these risky loans, we'd be back on our feet in no time! Workers would make money, bankers would make money, and we'd all be happy.

What could possibly go wrong? I mean, if the markets hit a rough patch and the financial system falls to pieces, the government can just bail everyone out. Presto! That's what they're there for, after all.

It's a win-win situation.

[snowychap]

Mark to market is quite possibly the greatest example of failed financial regulation ever.

I think we knew you were going to say that.

I'm still surprised, though, that someone who believes that the market is the ultimate arbiter of everything won't allow the market to value the assets of a business.

This stuff about, "How can we value our assets at a market price when there's no market?" is whining from the people responsible for the market disappearing.

"If there's no market then, in your market driven world, they're worthless."

The answer to toxic debt is not to allow companies to account for their assets by licking their finger and sticking it in the air.

[leviramsey]

The issue is one of accounting. One of the cardinal principles in accounting is that you record the expenses as they occur. Mark to market forces the expense to be booked before it occurs (or the revenue, if it should happen to be an asset that is trading for more than the purchase price, to be booked before it's earned). Banks should have to report the current market value of their assets, but it should not be used as a regulatory tool (otherwise it's OK to carry assets at inflated values because the price has gone up, thus making banks less solvent when a bubble finally bursts).

The other issue is that there never was any sort of liquid market for these assets with participants apart from those who already had the assets and no reason for any participant to buy the assets for hold-to-maturity purposes. The securitization regime would be more functionality if a) borrowers were informed what securities their loans had been packaged into and if loan servicers were required to accept securities that a given loan had been packaged into at par value in service of the loan. With that feature, there would be a liquid market (because price drops would lead to borrowers being willing to buy them at even 99% of par to retire their debt... that's what corporations do fairly regularly: buy their publicly traded debt at a discount and forgive their own debt).

The market already values the assets of the business in their totality: it's called the stock market and the bond market... and both are more apt to be accurate (given that they have more participants and greater liquidity) than the rudimentary markets that exist for most derivatives and securitizations.

[snowychap]

It is an issue of accounting in so much as businesses are being asked to reasonably reflect their state of health in their balance sheet.

Another principle of accounting is prudence and whilst I accept the difficulty which you expressed in one of your previous posts about over inflated market prices (which would not necessarily be prudent), I really don't think that can be an excuse used by financial institutions to recommend mark-to-myth (though the US have swallowed this hook line and sinker - they seem to have forgotten Enron).

I understand that mark-to-market for financial instruments isn't perfect but at least it is coming at the problem from the basis of trying to reflect the current position rather than allowing the possibility of fiddling figures to give the appearance of a position.

Returning to the banks less solvent comment, that is something which ought to be dealt with via capital requirements, surely?

My main problem with what has happened (and what is likely to happen elsewhere at some point) is that the nod has been given back to financial institutions to add another veil to make their balance sheets more opaque again. It is hardly what we need in the long run, though I accept the fact that banks themselves are loving it and the possibility that they will probably report very tidy profits for the first quarter which might well lead to everyone going, "Whoopy do, we're on the up again."

It's Humpty Dumpty, Levi.

[snowychap]

Warren Buffet on the dangers of 'mark-to-model' back in 2002:

Those who trade derivatives are usually paid, in whole or part, on “earnings” calculated by mark-to-market accounting. But often there is no real market, and “mark-to-model” is utilized. This substitution can bring on large-scale mischief. As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counter-parties to use fanciful assumptions. The two parties to the contract might well use differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.

I can assure you that the marking errors in the derivatives business have not been symmetrical. Almost invariably, they have favored either the trader who was eyeing a multi million dollar bonus or the CEO who wanted to report impressive “earnings” (or both). The bonuses were paid, and the CEO profited from his options. Only much later did shareholders learn that the reported earnings were a sham.

Also, Mark-to-Market isn't the problem:

It seems as if many have been fooled by those supporting the banks. The general argument that has been made is that mark-to-market accounting has been largely responsible for the banking mess since it creates price transparency for assets held on the books daily. Given the problems in real estate, mark-to-market has been particularly harmful to mortgage-backed securities. Therefore, as the argument continues, we should eliminate, suspend or revise mark-to-market rules because the price transparency it offers is not necessarily indicative of asset values. Finally, removing mark-to-market would help rescue the banks. I challenge these views.

The fact is that mark-to-market accounting provides a vital function. It allows investors to know what the assets would sell for currently. Thus, this price transparency implies asset valuation. What is valuation? You can use any traditional method you want, from discounting cash flows to the options pricing method. At the end of the day, valuation ultimately relies upon a large market of buyers and sellers of securities. They are the ones who determine pricing. Hence, they are the ones who determine valuation. Valuation ultimately relies on what someone is willing to pay for a security. And mark-to-market better estimates valuation according to this definition.

We should not blame this prudent accounting regulation on banks that acted irresponsibly. Are we supposed to design rules around banks so they can continue their Ponzi schemes? I think not. The fact is that if banks had practiced real risk management instead of using highly flawed methods to model risk (like VaR), they would have contained and priced risk much better. This would have restricted the amount of leverage they used, and we would not be in this mess.

But they chose the path of optimal short-term profits instead, because they were focused on their Christmas bonuses. Greed, incompetence, and fraud. These three words sum up the reasons why the banks are in this predicament today. And unfortunately, virtually everyone around the globe is paying a heavy price for their mistakes. So don't blame a responsible and beneficial accounting rule for the problems. Anyone who believes a removal of mark-to-market guidelines would be prudent simply isn't thinking straight.

That said, I do believe a temporary revision to mark-to-market guidelines would add a large amount of intermediate-term stability to the banking system. But these effects would not necessarily be permanent. Such a change could actually create a larger problem down the road.

I might have been in favor of a change or halt in market-to-market accounting guidelines PRIOR to the banking bailouts, but not now. Revision or removal of mark-to-market would add more to the bailout precedent, further strengthening the moral hazard that has been created. As well, any such revisions intended to be short-term would most likely be drafted into permanent accounting rules. That would definitely create some very big problems down the road.

In conclusion, mark-to-market serves a vital function. We should not blame it for the banking problems. The bankers are to blame. We should never create rules to suit criminals, nor should we blame the law when criminals break it.

Stress is as the author originally wrote the article.

[Anti-Oedipus]

I blame the fascism of captial.

[leviramsey]

Mark to market and its use in regulatory capital is probably a good thing for the UK, and for investment banks, where there never was an orderly failure of a bank could occur. In the US commercial bank sector, the FDIC has an admirable record of stepping in when the shit is hitting the fan, separating the good assets from the bad, and essentially doing what would happen in a bankruptcy but without the delay of a bankruptcy (at least as far the main creditors, the depositors, are concerned).

Again there never was a reasonable market (with participants beyond the major banks and reasonable transaction costs) for these assets. Ultimately, IMO, they shouldn't be covered by mark-to-market until such time as a market with quoted prices (since at the moment, the prices are all hearsay... the only people who know what a given asset sold for are the parties to the transaction) and non-bank participation exists.