It appears that the EU have finally relented to the pressure brought to bear by EU Referendum and decided that the mark-to-market rules should be relaxed.
This means that banks, who precipitated the crisis in the first place by making loans on the basis of fraudulent and/or inflated property values and covering up the losses until it was too late, will now be able to continue the practice.
And let's not forget The Golden Rule of the Eurocracy: "There's nothing that they can't make worse"
I'm with the Association of British Insurers on this one:
"The Association of British Insurers believes that accounts should portray the situation facing companies as it is in reality, and the fair-value approach is important to this. If we are to have faith in accounting standards, fair value should be applied when the going is hard as well as when it is fair."
Seeing as the total, worst-case losses from UK mortgage lending will be less than 5% of all household borrowing, what's wrong with sensible write-downs coupled with debt-for-equity-swaps?
Tuesday 7 October 2008
"EU says to relax mark-to-market accounting rules"
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6 comments:
What I can't see is any systematic thinking behind their moves.
They seem constantly surprised, and then do the worst thing possible (cover up the symptoms) every time.
I almost think it's a conspiracy they are so incompetent.
I really dislike "lying is OK" legislation. It's like the law that a criminal conviction ceases to exist after x number of years. They seem to think that they can repeal the laws of logic. Twats.
Not sure if I follow this.
A couple of years ago in the boom time I was offered a few quid (a about a houses worth ) for a piece of intellectual property. I turned it down. (ill cash in closer to retirement)
Now of course today in bust britian I would not get even 25% of that offer, but I will not accept or need any less than what I was offered, and I am sure in time I will be able to cash in with a good price.
So what you are saying is the banks assets must be valued at firesale prices because that is the current market price?
Its not unreasonable in exceptional circumstances to ignore current turbulent markets?
PB, banks are just middlemen.
They borrow money and lend money. Their main asset is the money they have lent out, that generates interest income which they use to pay the interest on the money that they borrow.
If you wanted to borrow money and offered that IP as security, the bank would value it on the basis of today's value. And rightly so.
Ask yourself, if a mate of yours asked you to lend him money secured on something he owned, would you value it at today's value, or at the price that he hopes (quite possibly rightly) that he can sell it for ten or twenty years hence?
So, if the banks want to borrow money (and even taking deposits is borrowing, as far as the banks are concerned) should the people who lend to them (and that includes people who deposit money with them) demand any lesser security?
"Ask yourself, if a mate of yours asked you to lend him money secured on something he owned, would you value it at today's value, or at the price that he hopes (quite possibly rightly) that he can sell it for ten or twenty years hence?"
Possibly
If it can be proved that the market is not representative of the long term value and a risk premium on the loan is acceptable.
PB, "If it can be proved that the market is not representative of the long term value and a risk premium on the loan is acceptable."
Exactly! At the very least you'd want to know the current market value; the likely future value; your mate's other income; and whether he'd be able to afford the risk premium.
This is the kind of information that banks want to keep hidden. Which is why nobody will lend to them etc.
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