Comments on: Paulson’s Economic Patriot Act is about marking to market http://www.creditwritedowns.com/2008/09/paulsons-economic-patriot-act-is-about.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2008/09/paulsons-economic-patriot-act-is-about.html#comment-362 Edward Harrison Tue, 30 Sep 2008 14:25:00 +0000 http://www.creditwritedowns.com/2008/09/paulsons-economic-patriot-act-is-about-marking-to-market.html#comment-362 Edith,<br/><br/>I just saw your comment here. I do think that we might have to suspend FAS 157 temporarily because of its pro-cyclicality. It only amplifies the downturn. What we would put in its stead is debateable. I would suggest that we need some sort of compromise for the time being either in terms of capital or marks to eliminate the pro-cyclicality.<br/><br/>FAS 157 is good in theory but w are witnessing its flaws right now. Do you have any suggestions on how to better deal with the problem?<br/><br/>Edward Edith,

I just saw your comment here. I do think that we might have to suspend FAS 157 temporarily because of its pro-cyclicality. It only amplifies the downturn. What we would put in its stead is debateable. I would suggest that we need some sort of compromise for the time being either in terms of capital or marks to eliminate the pro-cyclicality.

FAS 157 is good in theory but w are witnessing its flaws right now. Do you have any suggestions on how to better deal with the problem?

Edward

]]> By: Edith Orenstein http://www.creditwritedowns.com/2008/09/paulsons-economic-patriot-act-is-about.html#comment-348 Edith Orenstein Sun, 28 Sep 2008 03:15:00 +0000 http://www.creditwritedowns.com/2008/09/paulsons-economic-patriot-act-is-about-marking-to-market.html#comment-348 Ed, it sounds like you're somewhat neutral or open minded on whether the accounting (FAS 157) needs to be addressed or interpreted vis-a-vis application in illiqud markets. I think the procyclical camp has something to say for it, in that market transaction prices in today's illiquid markets are relying in some cases on vulture pricing which is then being extrapolated to entire portfolios or portfolios of similar instruments. Rather than the tail (accounting) wagging the dog (the auction process, or more broadly, the economy) I think it may be worth considering if the tail needs adjusting, since it was created on an explicit theoretical presumption of active markets with willing buyers and sellers and non-distressed sales, rather than forcing the dog to chase its tail. Ed, it sounds like you’re somewhat neutral or open minded on whether the accounting (FAS 157) needs to be addressed or interpreted vis-a-vis application in illiqud markets. I think the procyclical camp has something to say for it, in that market transaction prices in today’s illiquid markets are relying in some cases on vulture pricing which is then being extrapolated to entire portfolios or portfolios of similar instruments. Rather than the tail (accounting) wagging the dog (the auction process, or more broadly, the economy) I think it may be worth considering if the tail needs adjusting, since it was created on an explicit theoretical presumption of active markets with willing buyers and sellers and non-distressed sales, rather than forcing the dog to chase its tail.

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