Bank Regulations Accelerated Financial Collapse
October 8th, 2008 by jack
Yes, contrary to all the socialists’ claptrap that lack of regulation lead to the current financial collapse, it was in fact SEC accounting and capitalization regulations that accelerated the collapse. The primary culprit is the “fair-value rule,” S.F.A.S 157, a.k.a. Mark-to-Market. That regulation says that banks must carry assets at their current fair-market value — what they can be sold for today.
Now, let us say that I own a bond, which I intend to hold until maturity, and which I fully expect to be paid. Previously, one could compute the Present Value of the bond, assuming it to be held to maturity, and assuming some nominal inflation rate. With the Fair Value rule, the value of that bond is determined by the current state of the market.
The Fair Value Rule is not bad in and of itself — it does give investors a better sense of the book value of the companies of interest. However, the Fair Value Rule did not stand alone. Banks are required to keep a certain amount of capitalization. So, when the market tanked, banks were forced to sell assets to keep up the capital reserves. Barron’s said it better than I can:
Mark-to-market accounting, which stipulates that assets be carried on balance sheets at their current market price, has been blamed for exacerbating the credit crisis. By requiring writedowns on loans and securities that have declined in price, institutions have to make a corresponding reduction on the other side of the balance sheet, to capital. That only worsens the credit crunch.
“Ending the credit crisis will be highly unlikely without some type of accounting accommodation,” according to Bridgewater Associates, the highly respected institutional money manager. “Because mark-to-market accounting on existing assets threatens bank capital today, it increases solvency concerns today, which raises funding costs and accelerates the need to sell assets today, which depresses the prices of those assets, which threatens capital and raises funding costs.
This rule may be relaxed or removed soon, but it may be too late. We have again paid the price of unintended consequences of government meddling and ineptitude. Will we ever learn?
This entry was posted on Wednesday, October 8th, 2008 at 10:08 pm and is filed under Economics, Socialism. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
October 8th, 2008 at 11:08 pm
mullah cimoc say ameriki now the destroy so much. first him daughter take LBT (low back tattoo) become slut for every man even gang member, wife the lesbian hate all man, even white or black and mexicano too.
now him economic to suffering. ameriki not to care if 1 million iraqi him dead but now to worry so much if not the big scene tv for watch filth movie and tv show of gay homosexual and bad girl smoke the cigerette. so sad for ameriki man. him now the feminize and to lose him land to aztec and maya people because brown woman to have the many baby but ameriki white woman so skinny the emaciate and not to have the child just big mental problem, the mental pill medicine and hate the mans.
October 9th, 2008 at 3:52 am
Somebody should declare a fatwah against Mullah Cimoc!
October 9th, 2008 at 7:11 am
So much for rational discussion.
October 9th, 2008 at 8:14 am
Rational discussion? At a place that insets Obama’s face on a communist propaganda poster?
As a read on a thinking conservative blog yesterday, the right is not against liberal ideas, it seems to be against ideas altogether.
Sad days lay ahead for this party.
October 9th, 2008 at 8:53 am
Edmund, I’ll take the sad days of the Republican Party over the Socialist Agenda of the Democrats any day. Haven’t you switched sides and don’t you support BO? Why not support your candidate and new party instead of pounding your old one - after all you are full of hope and change, right?
October 9th, 2008 at 8:55 am
Crazy Eddy,
Considering all the Bush=Hitler crap that has been floating about for the past 8 years I find you more than a little disingenuous. Obama has personal ties to:
1 Ayers, a socilaist and other things
2 went to a church whose doctrine was based on the works of Cone
3 was endorsed by the DSA in his 1996 bidf for state senator
4. Has an uncanny knack for using the words of Saul Alinsky in his campaign rhetoric
There is a far and away stronger link between Obama and Socialism than there is between Bush and Hitler. Drawing a link between Obama and Socialist/Communist ideology is not a stretch.
Communism is Socialism with an international bent. Since Obama has declared himself to be a citizen of the world in Berlin, and has said on more than one campaign speech that we will need solutions that are communal in nature this link is sizing him up to a T.
October 9th, 2008 at 9:13 am
Actually, mark-to-market (along with govt coerced subprime lending) is a cause of the massive equity inflation that is now draining.
Via mtm, institutions could “show” vastly increased assets as they “rose” and then lend based on the same to acquire more; which “rose” for a while and then ….
Repealing it now, and keeping it off is OK. But repealing it now actually just aids the perverse system … similar to the bailout.
October 9th, 2008 at 9:19 am
It is amazing how fast the libs can drag a thread off-topic when they have no answers to the issues raised in the original article.
October 9th, 2008 at 9:21 am
Not Russ,
You are ALMOST correct. It is not that the institutions COULD show vastly increased assets as the bubble grew, they HAD to.
October 9th, 2008 at 10:58 am
As a read on a thinking conservative blog yesterday, the right is not against liberal ideas, it seems to be against ideas altogether.
No, conservatives are just against old tired disproven ideas. I would add dangerous ideas.
Trying to pawn off Obama as some kind of new outside of the box thinker is pseudo-intellectual crap. Barack Obama is a dyed in the wool leftist with a silver tongue and a nice suit.
His ideas and associations all lead to one place.That place is just to the left of George McGovern.
Barrack Obamas answer for everything is Government. More Government, Bigger government. Further, he would not know the workings of a free market economy if you stuck it in his ear. He is simply clueless on matters economic. He has no life experiences that ready him for the office of the President of the United States. None.
Obama is a cruel accident. Even he is shocked he is in this position.
Spending your entire adult life with leftists, and those espousing watered down socialism couched in the fluffy language of the new left might be OK if you want to be the an assistant to Hugo Chavez, but not President of the United States.
Pretending his ideas are not a variation of the Socialists clap trap theme is pure unadulterated BS.
Now back to Banking regulations.
October 9th, 2008 at 1:26 pm
3 was endorsed by the DSA in his 1996 bidf for state senator
This more than the others will hurt Obama IF someone, anyone does the least amount of digging.
October 9th, 2008 at 2:44 pm
I got 3 things to say:
1. Can I get my mortgage reduced to say an interest rate of 1% before all the money is gone?
2. Jacob-the “Crazy Eddy” remark is classic.
3. “Further, he would not know the workings of a free market economy if you stuck it in his ear.” This is a Stonerism!
October 9th, 2008 at 3:21 pm
With Greg’s permission after the dust settles froim the campaign, I may write an article enoumerating the Stone - ism’s. This will be a highly education post, providing many a fledgling conservative with a proper out look on liberals. Not to say ALL liberals have their heads wedged up their collectivist butts …
October 9th, 2008 at 6:33 pm
http://www.amconmag.com/larison/2008/10/09/on-palins-record/
Which one is the socialist again?
G, after the ashes settle, the Rs will need to retool.
How do you see this playing out? Do they go farther right? Do they go to the middle, do they toss out the fundamentalists? Which way do you see the party moving if McCain looses in an electorial landslide?
October 9th, 2008 at 6:38 pm
Good Lord, I just read jacob’s 5 seconds on socialism and communism up thread.
“Communism is Socialism with an international bent.”
This made me laugh. Thanks.
October 9th, 2008 at 6:57 pm
Crazy Eddy,
Have you not ever heard the song “le’ international”, guess not, ignorant and opinionated. How typical. try this ol boy …
http://www.marxists.org/history/ussr/sounds/lyrics/international.htm
October 9th, 2008 at 7:29 pm
Edmund, Posting opinion pieces and pretending they are some type of roadmap or gospel for Conservatism is pretty absurd. These nonsense, cat and mouse, contrarian posts get old.
Stand up for your ticket, Man. Point out why Obama/Biden are better for the country than McCain/Palin. We conservatives admit our candidate (McCain) is flawed, tell us why Obama is closer to conservatism. Please.
October 9th, 2008 at 9:59 pm
“pretending they are some type of roadmap or gospel for Conservatism is pretty absurd.”
Overstate much?
There are a lot of conservatives that will vote for Obama. These are people that believe his temperament is suited for the job and don’t believe all the nut-job stuff that Hannity and the rest toss around (like the stuff here).
Remember when the same folks were saying Clinton was a KGB plant? You probably do.
I’m really not familiar with the rhetorical landscape here (although I get the drift), so I won’t bother you much longer. Echo chambers are boring and intellectually lazy.
To keep it brief, there are three reasons that one can support Obama: soft power advantage (the world’s perception of the US would change dramatically and be a tactical advantage for us in a scary world), Constitutional protections (the Republicans are the radicals here that view our Constitution with disdain — I want all current administration ideologues removed), and lastly, I thing the Republican party needs a reset (the fundamentalists big spenders have grown this government beyond anything the Ds have ever done).
I have a suspicion that you and I have had a word or two at another site, Cathymac.
October 10th, 2008 at 1:46 pm
http://www.thedailybeast.com/blogs-and-stories/2008-10-10/the-conservative-case-for-obama
For Cathymac…
October 10th, 2008 at 2:58 pm
There are a lot of conservatives that will vote for Obama.
Ya all three of you. This is an absurd statement.
I will not even cut and paste the rest it is a waste.
In short, it is faux intellectualism at its best.
“I thing the Republican party needs a reset (the fundamentalists big spenders have grown this government beyond anything the Ds have ever done).”
You then opine for a guy who thinks a trillion is pocket change.
You are as usual all over the map at times stopping in a place that makes sense maintaining a consistent thought process and then its gone. There is hope however, you were right about spending. Now if you could lose your paranoia about certain aspects of the required coalition you would not be forced to pretend Barrack Obama resembles anything conservative.
October 10th, 2008 at 3:07 pm
“I have a suspicion that you and I have had a word or two at another site, Cathymac.”
You would be correct Edmund, and you are still at it. The only thing I agree with is the big spenders, the other 2 points have been argued, re-argued, pounded into the ground and stepped on on TC.
As for Clinton as the KGB plant, I don’t remember that one. I think Clinton (both of them actually) want BO to fail. I recall his “fairy tale” exclamation during the primaries, and if McCain were smart he’d use it in an ad, Obama is a fairy tale - only it is not a happy one.
October 10th, 2008 at 3:08 pm
Crazy Eddy,
It’s been the Democrats who have tried to reshape the constitution the past 50 years. All that living breathing document crap. Try grammar instead.
I am beginning to see that Stone is a man of wisdom, you really do have your head stuck up inside your G.I. track.
October 10th, 2008 at 3:34 pm
“I thing the Republican party needs a reset (the fundamentalists big spenders have grown this government beyond anything the Ds have ever done)”
You glazed right over the creation of Social Security, the creation of Fannie Mae/Freddie Mac, the creation of Welfare, etc… to make this far flung statement? Jeez, man.
October 10th, 2008 at 3:51 pm
BM,
don’t interrupt him, he’s on a roll.
October 10th, 2008 at 10:26 pm
I will yield to those with more experience in the absurd and intellectual lazy.