Danielle, a European reader, recently asked what is going on in the European Union regarding mark-to-market. Basically, the EU has already relaxed mark-to-market requirements as an outgrowth of the market turbulence surrounding Lehman Brother’s bankruptcy. Below is an October article from Business Week highlighting the key issues.

Below is my translation from an excerpt in the Swiss newspaper NZZ:

In 2008, the lucrative business with loans to U.S. students came to an abrupt end. Today, UBS sits on paper that could still be worth $8.4 billion – or less. The collapse of the market for student loanshas increased the barrier to a good education for young Americans.

The title of this post is fairly provocative and categorical. This is by design. For I see Obama’s banking plan as more of the same — not ‘change we can believe in.’ And we all need to be clear about the need for Obama and his team to correct their course of action. Whilst there may be plenty of other reasons to support the President, this is not one of them.

An issue that has received scant acknowledgment in the media is the likely hole in pension funds books resulting from the recent out in shares. Pension funds must invest the money they receive today in order to provide pensioners funds tomorrow. The problem is that pension funds have been overestimating the likely returns for years and now that we have hit a rough patch in the economy this poor actuarial accounting is about to catch up with them.

It wasn’t until I read about a massive writedown by a German bank associated with the bankruptcy of Lehman Brothers that I started to connect the dots. But, there is a hidden flaw in our accounting system which accounts for some of the distress associated with the Lehman bankruptcy. And it all leads back to marking to market.

Yves Smith has a good post over at Naked Capitalism that brings attention to the fact that banks are hiding potential losses in Level Three assets. Ultimately, these losses are going to have to be recorded and that means more credit writedowns and a larger bailout for the financial services sector. You have been warned.

The interesting thing about the Paulson proposal is that it gives the U.S. Treasury carte blanche to buy any of these toxic assets at any price it chooses. This is relevant because of mark to market rules in FAS 157. I have posted a few times on the mark to market rules of [...]

Apparently Lehman not only failed, it left a gaping hole its accounts. The UK pension scheme is missing £100 million. UK regulators certainly need o investigate whether the shortfalls are the result of criminal activity.
However, pensions are certainly something lurking in the background that I have failed to discuss. As the stock [...]

Seven years ago, I was involved in a merger that was the last proposed under the old pooling of interests accounting rule that was phased out after June 30, 2001. This methodology was great because it didn’t necessitate acquiring companies to re-mark assets on the companies balance sheets to reflect impairment of intangible assets.
Needless [...]

A credit writedown is a reduction in the value of an asset as it is carried on a company’s balance sheet. As these losses must also be reflected on the income statement, credit writedowns result in massive losses.