Tuesday, September 30, 2008

Late night gas

So, not much creativity this morning because I was at the gas pumps at 11:30 pm last night to be sure I had enough gas on hand to continue to get to work. I went to this same station a week ago, and tensions were high and people were on the verge of fist fights. This time it was very genteel in a sort of 1 for me, 1 for you sort of way. And the monitors hired by the station for each entrance helped. As did the police presence.


And the bail out failed.

Have I mentioned I was a CPA? Yes. GAAP and debits and credits. GAAP? It stands for generally accepted accounting principles and is used in the United States.

Well it seems a rule called "mark to market" intended to keep institutions honest included in the overkill bill called Sarbanes Oxley has had unintended consequences.

Basically it says rather than showing an asset at the amount you paid for it, you must show it at the current market price. While in general this is usually a good thing, sound assets (performing loans in this case) are getting marked down to nearly $0 because of the overall financial/economic situation when they are still performing (performing = folks like us still making their mortgage payments on time). This is an element of what is facing the banks and other financial institutions that invested in banks. It is NOT the only element of the crisis.

But it's interesting to see GAAP get called on the carpet. Wonder how that gang is feeling about now?

Keep an ear out: I heard Newt Gingrich last night saying that changing this rule alone would ease some of the immediate pain. Last week I heard something similar. It'll be interesting to see if anything about this rule changes.


  1. I was watching Newt too.

    Is Newt's idea a good one.
    It sure sounded good to me?
    I heard a second person mention it last night.

    We are not having gasoline issues.
    Are you in the south?

    I hope your day goes well today!

  2. Hi Molly,
    I am a bit off topic, but need to say thanks for your book recommendation of author Lee Child.

    I have posted a note about your recommendation and the book that I am reading.



  3. Donna - Yes, I think Newt's suggestion to adjust the "mark to market" rule would be helpful since it will increase the assets in a bank's balance sheet, increasing the amount they can loan, which in turn begins thawing the credit freeze. Marking the assets to market reduces the amount banks can loan because they can loan a % of their assets. We are now skating on the thin ice of my understanding because I have not worked in the mortgage industry in +10 years.

    Gasoline shortages are predicted for Atlanta, the Carolinas and Tennessee...I'm in Atlanta.

    CSI Seattle - Thanks for the link Monday and I'm happy I could make a suggestion you enjoyed!

  4. I follow the financial markets quite a bit and I completely agree with this post. I keep telling our financial institutions to keep on lending but to make sure that all the loan requirements are invesitgated fully.

    Do you agree with Newt and what are your feelings on the complexity of the Dow sitaution thus far?


  5. Marlene - I am sorry to say that I am bewildered at how we find ourselves at this point. I do feel the accounting rules have gotten a bit too esteric and don't necessarily reflect what's going on. My view is you can't legislate honesty - we had adequate rules in place before Enron. Folks just did things they knew weren't right.



Related Posts Widget for Blogs by LinkWithin