The reason why asset prices have to come down is because the prices of those assets are too high.
What we have here is a scam. Albeit a legalised one but nonetheless a scam.
I wouldn't trust a thing that comes out of a bank these days. I'm going to take every penny I have out of my existing account.
Do they take us all for fools?
I wouldn't agree with that. The downside to mark to market accounting, as Marc pointed out, is that it can force the holder of the asset to write down the asset to the 'perceived market value'.
Valuation is subjective at the best of times. If a period of forced liquidation enters a market, as we have seen in recent months, assets are sold in desperation. Holders of similiar assets may then have to make write downs to reflect this, regardless of whether they ever intend to sell the asset.
Take a simple example:
If the market place consists of 2 companies. Company A is in a strong position, but Company B is highly leveraged and needs cash. Both hold an asset worth 3 million. Presume that the value in use of this asset is also 3 million. Company B needs cash quickly and buyers realise they are in a bad situation so it sells the asset for 2 million. Mark to market accounting may dictate the market value to be 2 million. Company A could suffer a 1 million write down, despite never having an intention to sell this asset. This 1 million may then have to be put through the Income Statement, which effects the profit of Company A for that period.
The 'one size fits all' approach based on what the market perceives is the problem here. Mark to market presumes an efficient and liquid market. Market imperfections are inevitable. Flaws of mark to market occur when fear grips a market, margins are called, liqidation is forced and sellers have poor bargaining power.
Sorry I missed your post when posting. If a company invests in an illiquid asset, then I do not see why they should be provided with an accountancy trick in order to hide the fact that the asset is difficult or impossible to sell. I hate the term "race to the bottom" but that's effectively what is being proposed here; companies with lots of volatile or illiquid and currently worthless "assets" on their books want to be able to present a balance sheet which makes them look like a company holding solid liquid assets.Valuation is subjective at the best of times. If a period of forced liquidation enters a market, as we have seen in recent months, assets are sold in desperation. Holders of similiar assets may then have to make write downs to reflect this, regardless of whether they ever intend to sell the asset.
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