Wednesday, March 11, 2009

Redefining Mark-to-market

FASB 157 defined fair value and provides a framework for measuring fair value of assets. This was issued recently. Fair value is based on the market exchange. Under market failure, fair value is difficult to obtain and ascertain. Market failure has occurred for the mortgage based securitized toxic assets. Fair value does not apply to these toxic assets. Market has not experienced the 60%+ correction as it has over the past 18 months. Therefore, mark-to-market needs to be assessed and redefined. The redefinition will stop the demise of healthy banks and diversified financial.

1 comment:

  1. I agree that long-run assets should not be marked-to-market.
    The redefinition of the rule should however assign higher weight to the market price in determining the value and should not completely left to the model. Maybe this needs oversight on creation of over-the-counter instruments.