March 9, 2009
To Whom It May Concern:
I am writing today to inform you of the dangers of mark-to-market accounting and the disastrous effects it is having on our country’s financial system. Instead of focusing on spending trillions of dollars and nationalizing banks, suspending mark-to-market accounting could fix the major financial problems we are facing at no cost.
The history seems clear. Mark-to-market accounting existed during the Great Depression and according to Milton Friedman, it was responsible for the failure of many banks. Franklin Roosevelt suspended it in 1938, and between then and 2007 there were no panics or depressions. But when FASB Statement No. 157 went into effect in 2007, it reintroduced mark-to-market accounting, and look what happened.
At the root of our financial problems are securitized mortgage pools. The price of many of these pools is well below their value based on cash flows, meaning the market is pricing in more losses than have actually, or may ever, occur. Mark-to-market accounting rules force banks to take artificial hits to capital without reference to the actual performance of loans in these pools. This affects our entire economy and undermines the banking system, increasing the odds of asset fire sales and making markets even less liquid.
Suspending mark-to-market accounting is a cost free way to stop this downward spiral and contrary to popular belief will not allow banks to sweep bad loans under the rug. Not suspending it, while allowing massive government interference in the economy is a recipe to undermine future economic growth for years to come. I strongly urge you to ask the Securities and Exchange Commission to suspend FASB Statement No. 157 and mark-to-market accounting altogether.
Todd D. Bernstein
First Vice President