Subprime: Is Mark to Market Accounting Marking Things Worse

http://www.informedtrades.com/ The third and final lesson in a 3 part mini series on the subprime crisis and specifically the role that mark to market accounting has played.

Category:

Education

Tags:

• mortgage
• housepricecrash
• subprime
• sub-prime
• cdo
• crash
• offbalancesheet
• stockmarket
• financial

[deathwishdn]

hey David

couple of questions

how is setting of standards by the IASB useful for making economic decisions and how is it effective in times of economic crisis

[InformedTrades]

An understanding of accounting standards is helpful when looking at a companies books to see how they report earnings and where they may be hiding losses or inflating earnings. This applies during times of economic crisis or normal economic times. Best Regards, Dave

[maryrat23]

So, if I understand correctly, in laymen's terms, if a person owns, say, $100 a share in a Mom & Pop store and that store takes a dive leaving shares worth $1 then every one else that owns shares in other Mom & Pop stores would have to revalue their shares to $1 also?

This is the gist of my understanding.

[InformedTrades]

Hi Maryrat23, Yes this is true. A better example would be if you lived in a neighborhood with 10 houses all of which were exactly the same. Then you neighbor goes bankrupt and has to sell his house in 1 day. The price that he gets is probably going to be a lot lower than the true value of the house. Nonetheless following mark to market, the value of everyone elses house in terms of qualifying for loans etc would not be marked down to the price he sold his house for. Best Regards, Dave

[Mark550355]

the overview of the entire topic is excellent, very easy to understand and straight to the point, this is the best place to come for info on finance. Well Done

[InformedTrades]

thanks for the comment and for watching I am glad you liked it. Best Regards, Dave

[paolausfq]

Question... So the fair value of MBS must be done on mark to market instead of market to model. Is this because it falls under the rules FAS 115 and 157?... Let's say that MBS are HTM even in this terms they need to be valued at Mark to market?

[shiznaw]

isn't mark to market applied to only securities available for sale?

[U2BHistory]

Good Stuff. I wish more people would actually take the time to watch videos like this. It might help them to begin to understand how to get out of the Crisis. I'd be interested to see your views on my video at U2BHistory.

[deathwishdn]

awesome thanks dude, just needed an expert to get me started on my assiginment lol