Mark-to-Market Accounting Essential, According to Nobel Prize Economists


by Alex Floum
August 20, 2009
Examiner.com


Yesterday, Nobel laureate Robert Merton and 2 other economists wrote in the Financial Times:

"Banks and other financial institutions are lobbying against fair-value accounting for their asset holdings. They claim many of their assets are not impaired, that they intend to hold them to maturity anyway and that recent transaction prices reflect distressed sales into an illiquid market, not what the assets are actually worth. Legislatures and regulators support these arguments, preferring to conceal depressed asset prices rather than deal with the consequences of insolvent banks.

This is not the way forward. While regulators and legislators are keen to find simple solutions to complex problems, allowing financial institutions to ignore market transactions is a bad idea."

Nobel economist Myron Scholes agrees:

"Financial institutions should use mark-to-market accounting or list the hard-to-value securities on public exchanges whenever possible, Scholes said in a Bloomberg Radio interview yesterday. Scholes ... said investors need better data on prices to accurately value the debt and equity securities of banks.

“I’d like to see us encourage many more securities held on the books of the banks be migrated to exchanges if possible,â€