Summary
Book value is foundation of market value. If you separate them, market value will become VALUE IN THE AIR.
Analysis
Bernanke and other financial policy-makers under the current administration are no different than their predecessors under the former administration. They know a couple of things about finance BUT NOT THE WHOLE SYSTEM. If you don’t understand the whole system completely, you cannot run it successfully.
Since 2004, I have tried all I could to contact the President and Congress to tell them about upcoming financial meltdown as result of huge deficits and trade imbalance. To prevent the collapse of US financial system, I also tried to persuade the Financial Accounting Standards Board (FASB) to replace Mark-to-Market accounting rule with FinancialTree Value System, by which you can see past value, present value, assessed value, expected value, market value, future value and or any other values you like at the same time. This is the REAL FAIR MARKET VALUE.
Book value is a past value and cannot reflect current value. But at least it is a real value calculated on real assets and income. Mark-to-Market value is a current and forwarding-looking value calculated by share price X no of shares. Share price is not only driven by fundamentals but also largely by MARKET SEMTIMENT made of greed, fears and imagination. So market value can go up and down wildly beyond any reason. Market value triggered the near-collapse of WS. Remember Yahoo’s stock rocketed to $250 per share in April 2000 from pennies in 2-3 years before it plummeted to $3 a year later.
What the-above shows is this: Book value is foundation of market value. If you separate them, market value will become VALUE IN THE AIR. Who knows where the value comes from? If you don’t know that, market value will become imaginable and will fluctuate according to investor’s sentiment and imagination. This will give DIRTY RATING AGENCIES ample room to fool and cheat investors.
Of course, Cox and Ben don’t like suspension of mark-to-market because they don’t know anything better. If they suspend mark-to-market, stock market will close, and financial system will shut down.
At large, US economic policies have been proven wrong in many aspects from Americans for years. We were doing our best to grow China into an economic powerhouse, with whom US has lost more and more bargaining position. Now US is begging China for this and that.
