“Mark to Market” Again 0

David Weidner at MarketWatch discusses what would happen if you were under water on your mortgage and went to the bank to apply for a second mortgage. Yeah, you’d get invited to leave after the laughter died down. But . . .

Here’s the difference between you and financial institutions. They want to rewrite the rules and say their house of mortgages is worth something, generally whatever they say it’s worth.

You can’t avoid the reality that your house isn’t worth anything in this market. If you should have a financial crisis — say, lose a job, for instance — that house does you no good.

The banks are in the midst of a financial crisis and their assets — all those mortgage securities and other junk — are doing them no good. Mark-to-market is forcing them to write that stuff to zero and get some real assets, preferably cash, into their coffers.

Banks don’t want to accept the truth homeowners have faced about their assets. The banks want to say their assets are worth something even though no one will buy them — at any price.

In a capitalist economy, and, despite the Republicans’ bleating about “socialism” (which does little more than reveal that they don’t know–or don’t want to admit that they know–what socialism is), this is a capitalist economy, things are worth what persons are willing to pay for them.

Assets should not be valued for today based on what somebody thinks someone else might be willing to pay for them at some mythical future date (computing the value of assets based on what someone may pay for them in the future is speculation, not valuation).

There is more to this than Wall Street Banks’ financial concern for not wanting to admit that they have rendered themselves insolvent.

There is the desire of Wall Street Bankers to continue thinking and trying to convince the world that they knew they are doing.

After all, who wants to willingly admit that they have been getting all those bonuses for all those years for blowing it?