Benjamin Montgomery

I Will Be Honest…I Want To Puke

with 2 comments

The relentless misconceptions about economic truth propagated by the media makes me sick.

It’s not clear if everyone (except a few) that get regular time on TV are economically illiterate or so scared they have sacrificed common sense for wishful thinking.

Let’s take a discussion about mark-to-market accounting that I heard.  The argument goes…if companies could change the value of assets on their books so that they are worth more would it save the economy.

WHAT????

Is that a real question?  Let me frame it in a less complicated way.  If you had a car that does not run and you could not sell it would changing the price in Quicken change what it is?  Would it all of a sudden become a functioning car that brought you to and from work each day?

NO

No amount of accounting trickery or monetary management is going to change the physical assets of our economy.  Adding dollars does not change the amount of things.

The only actions that can add more things to the US economy are the people that producing more.  However, people are not going to know that they need to produce more if truth is distorted by bad economic policy.  The real solution to the economic failures in our country is market reality.  If the media would kindly present the truth instead of propagating nonsense we might actually get out of this thing with our dignity.

FACT: Economic production is the result of action not monetary manipulation.  Economic prosperity is the result of fair system that rewards the producer not those with political clout.

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Written by benmont1981

October 1, 2008 at 8:44 am

Posted in Uncategorized

Tagged with ,

2 Responses

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  1. Clearly, delaying write-downs is just a way to stall for time while the banks shore up their balance sheets. But policy-wise, it’s a false choice, really.

    I can understand why a *daily* mark-to-market may be less than desirable (daily variations in real estate value affecting capital requirements for one). One could imagine a reasonable moving average-type of model that would smooth the disparate values out a bit.

    But that’s not what led us into this mess, it was the *complete* lack of transparency in mark-to-model (mark-to-fantasy). Many of these securities had *never* been sold, so there was *no* price for it, so they made one up, which is ridiculous.

    So, now they want to do daily mark-to-market, bringing about all the worst parts of that model (ie: increased capital requirements, price discovery that will force further markdowns) at the worst possible time. Smart. Once again we have the regulators closing the barn doors after the horses are out.

    -DaveP

    DaveP

    October 1, 2008 at 12:32 pm

  2. I want to puke too. I wish that politicians were forced to take a test on the Declaration and the Constitution. After all, they swear to uphold it! But if I understand the fundamentals of mark-to market, I disagree that it is trivial point. If I own a house and I am not trying to sell it, how do I know what it is worth? I’d argue that establishing a value is difficult to know without a willing buyer and seller agreeing on a price, and it’s impossible to know in a short-term panic. In a panic, there are few buyers; many owners intend to hold on to their property for a long time. Some CPA, removed from the asset and abiding by the rules of conservatism in accounting, determines that the market price must be very low because there are no comparable transactions. This flawed way of valuing property results in the mark down of the asset value, defaults occur and panic sets in. “Market value” was never approached because not only was there never a buyer and a seller but there were never good comparable transactions.

    James L

    October 2, 2008 at 8:08 am


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