Wednesday, October 01, 2008

AIG and Mark to Market Accounting

There's an interesting article here on the link between AIG and under-capitalization in the European banks. The author points out that AIG's insurance on defaults allowed European banks to operate with much less capital than regulations would normally require, hence the chaos in Europe when AIG was on the skids (and the big federally engineered bailout of AIG).

There's also an interesting collection of quotes here about the proposal to give the SEC the power to suspend mark-to-market accounting. The comments are also a great read. Favorite quotes:
  • "Suspending mark-to-market accounting, in essence, suspends reality." -- Beth Brooke, global vice chair at Ernst & Young LLP;
  • "As a former MBS derivative trader...... all I can say is that not requiring traders to [d]o MTM is essentially a license to print your own say the least, this is not what an already opaque asset class needs at this time!" -- comment by Anonymous;
  • "If the credit markets have seized up because nobody knows who holds the toxic waste on their balance sheets, how is hiding it and pretending it isn't there going to help?" -- comment by IrvineRenter.
OK, that's enough bad news for now. If the federal government's debating suspending accounting rules, the accounting equivalent of pulling the covers over your head, then I can do the literary equivalent. Off to find some good news.

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