Subject: File No. 4-573
From: Gilbert F. Viets

November 23, 2008

RE: File No. 4-573
November 22, 2008
Ladies and Gentlemen:
Chairman Cox opened yesterdays (November 21, 2008) Mark-to-Market Accounting Roundtable with a question that became an up or down vote on fair value accounting.
In direct answer to Chairman Coxs question about mark to Market accounting, it is not good accounting. It makes sense for investment vehicles like mutual funds, but not for others. It is not principles based because the market is not. It has few defined boundaries and there is widespread unsettled disagreement among its proponents about its application. It is easily manipulated. It brings to registrants balance sheets and income statements the viruses and misunderstandings inhabiting our markets. It easily spreads diseases and falsehoods giving them false legitimacy with clean audit reports. The pressure of transaction fees and executive compensation accelerate the effect. It transmits virulent infection through the bloodstream of commerce, particularly for highly leveraged financial institutions, and explodes bad information into false capital and bad business decisions. It spreads pretense quickly and deceptively through a global market. It endangers the free market.
The so called fair value accounting had much to do with causing this economic crisis. It provided no restraint for the tendency of competition turning to greed. It turned bad loans into overvalued assets. It caused lazy audits. It disconnected asset market value from asset quality. It ignored real and contingent liabilities and the domino sensitivity of triggers. It hid truth.
The Chairmans fair value straw poll was not debated after consensual panel support. The panel debated how to fix it, relating it to postage scales and California homes to which they connected. The discussion revealed breakdowns of logic supporting fair value, the illogic that is ignored by CFOs, the FASB, the IASB, the auditing industry and the SEC. As a result, the public, employees and investors are left with a management sponsored flawed accounting model for which there is no mend. The decision to continue the model is final and we only wait for a year end memo from the SEC to reassure and excuse. Nothing is accomplished but a guarantee the question will be raised again as each new blow up is confronted.
In spite of many opposing messages from people who know clearly what it did to their savings and their jobs, only panelists who support it were heard. I trust people more who feel the pain.
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