Summary
- Mark to market is necessary for risk management - Even do disruptive markets may distort prices, there is a price for everything. - Even though the price of an asset may not be equivalent to the value of the asset, the market price should be used to gauge risk and position level. - When times were good and prices of assets significantly exceed the value, companies were not complaining about why they had to "write-up" their assets. They took advantage of that scenario and benefited from it. Now when the table have turned, they are crying foul. They should not be allowed to have it both ways. - FAS157 is not perfect, but it is the best thing we have to provide a transparent picture to the investing public. If management has something to explain, that is what disclosures are for.
Analysis
Mark-to-market (mtm) is an accounting and risk management concept that has been the center of heavy debate and ridicule. Although, it is not perfect, it is the best we have and the SEC should leave it alone.
Mtm is risk management. It gives users a fairly representative picture on how their positions are trending. If users (and management) are looking at the positions daily, they should know where the risks are cropping up and what they need to do address them. Companies who have been complaining about mtm either marked their books aggressively or did not pay attention to their positions to adequately manage the risk. Like it or not, the market is mostly right and if it is telling you something, you better listen.
Mtm is accounting. Users of financial statements want to know what something is worth at a certain point in time. This metrics provides the users with just that information. The users then need to perform their own price versus value calculations by using their own experiences and the disclosure provided by management.
