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Tuesday, October 07, 2008

 
Mark To Market

Recall from this post that both Newt Gingrich and Anthony Randazzo put abolition of the mark-to-market accounting rule on their finance sector reform plan. Two former AIG CEOs agree:

[Robert] Willumstad, who was CEO from June through the September action by the Federal Reserve, said "mark to market" accounting rules - which require companies to value securities at current prices in distressed situations - forced financial institutions to book billions of dollars in losses for securites that were not in default.

He said those losses led to a spiral that included debt rating downgrades.

[Martin] Sullivan, who was CEO from March 2005 until June, said the accounting rules were key among several factors leading to AIG's problems, saying they had "unintended consequences for financial institutions when markets seize up."

The Motley Fool has an easy-to-follow guide on how mark to market works.

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