CHESSNOID

There is a new accounting rule which is more like a magic act.  It is called “mark to market” and after watching a youtube video it makes much more sense to me.

These are local Las Vegas real estate agents but listen to what they say because it makes sense.  There are many banks just sitting on their foreclosures or REOs.  With the new rule, they are allowed to “mark to market” the asset (houses) as long as they hold on to it.  This is providing a false bottom in the housing market and will delay the inevitable.  It is also a legal way of misleading investors in my opinion.

Las Vegas Real Estate Update-Where are all of the bank owned properties?

Obviously, this is not just happening in Nevada but in all hard hit foreclosure states like California, Arizona, an Florida. I wonder if this is why many houses are just sitting empty because they have a new legal method of not reporting losses and overstating asset values.

Wikipedia:

On March 10, 2009, In remarks made in the Council on Foreign Relations in Washington, Federal Reserve Chairman Ben Bernanke^[18] said, “We should review regulatory policies and accounting rules to ensure that they do not induce excessive (swings in the financial system and economy)”. Although he doesn’t support the full suspension of basic proposition of Mark to Market principles, he is open to improving it and provide “guidance” on reasonable ways to value assets to reduce their pro- cyclical effects.

On March 16, 2009, FASB proposed allowing companies to use more leeway in valuing their assets under “mark-to-market” accounting, a move that could ease balance-sheet pressures many companies say they are feeling during the economic crisis. On April 2, 2009, after a 15-day public comment period, FASB eased the mark-to-market rules. Financial institutions are still required by the rules to mark transactions to market prices but more so in a steady market and less so when the market is inactive. To proponents of the rules, this removes the unnecessary “positive feedback loop” that can result in a deeply weakened economy.^[19]

On April 9, 2009, FASB issued the official update to FAS 157^[20] that eases the mark-to-market rules when the market is unsteady or inactive. Early adopters were allowed to apply the ruling as of March 15, 2009, and the rest as of June 15, 2009.

Companies can use the new guidance when issuing their first-quarter financial statements.^[21] Such changes could significantly boost banks’ statements of earnings and losses^[22]. The FASB changes, however, are for acceptable accounting standards applicable to a broad range of derivatives, not just banks holding mortgage-backed securities.