Finally – Obama Calls for Mark to Market Accounting!

President Obama has spelled out what neither Bush nor Paulson nor Bernanke nor anyone from the executive branch dared to tell the American people during this financial crisis.

In an interview with MSNBC’s Matt Lauer he implicitly called for mark to market accounting:

In an interview airing Monday on NBC’s TODAY show, Obama said the nation’s banks were in “very vulnerable positions” because of the reckless risk-taking that led to the meltdown of the financial services sector late last year. The situation he inherited 13 days ago is so bad that “it is likely that the banks have not fully acknowledged all the losses that they’re going to experience,” Obama said in the interview, which was conducted Sunday at the White House.

Stressing that ordinary Americans’ deposits, which are insured by the federal government, would be safeguarded, the president said banks were “going to have to wring out some of these bad assets.”

Hello?? Did anyone hear this? This bit seems to have gone relatively unnoticed with most people. Among all the stimulus nonsense and bailout mania, President Obama, in a relaxed manner, spelled out precisely what is needed for the US economy to get back on its feet. This is exciting news for anyone who, like me, has been waiting to hear anything like it for the past year and was instead consistently disappointed by repetitive and never ending Bush/Bernanke/Paulson lies and nonsense.

Obama then went on to utter the following 5 words:

…some banks won’t make it.

If he is serious about this, it marks a substantial change in the administration’s banking policy. This is bad news for most of the US’ national banks whose shareholders are still under the illusion that their assets are worth something, it is good news for the economy and for the people. If followed through upon, it significantly improves the outlook for economic recovery over the next years, that is of course after the government lets the sharp recession and the bank failures run their course in an unhampered manner.

As explained in the business cycle, the malinvestments need to be liquidated as fast as possible in order for phase 9, the correction, to be able to run its course. Marking bad loans to market is exactly what this is.

Dollar bulls, who are looking for a reason as to why the current short term Dollar rally might turn into a rather substantiated mid-term rally: This is it.

It will be interesting to watch the development of the money supply over the next few months. It is conceivable that the recent reflation attempts will prove completely futile and that the money supply growth will once again drop back to deflationary levels. In fact, if this administration encourages the destruction and consolidation of bad debts, I don’t see any other possible development than that.

Watch the video here:

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6 thoughts on “Finally – Obama Calls for Mark to Market Accounting!”

  1. You are trying to read your hopes into his words. Mark to market accounting will undermine all the denial and opacity the bankers and politicians have been using to maintain “confidence”. I really wanted to believe Obama thought this but I see I am once again disappointed.

  2. What is it that disappoints you? Did he nullify this statement already?

    True, I may be too hopeful, but this is definitely better than everything else I have been hearing so far.

  3. Hi, Nima

    I put this comment under the Current Account Deficit post, but it is probably more appropriate here.

    Did you see that the House Financial Services Subcommittee is going to meet this week to discuss suspending mark-to-market accounting rules?

    I hate when they say that there is “no market” for something just because it is not the market they want.

    And, legislation was introduced “to create a regulatory panel that would be able to suspend accounting rules such as the fair-value standard that financial companies have blamed for worsening the global credit crisis. ” It would be called the Federal Accounting Oversight Board and be made up of Geithner, Bernanke, Bair, and the chairmen of the Public Company Accounting Oversight Board and the Securities and Exchange Commission (Cox?) . (How scary is that?)



  4. Yes, after this statement that I pointed out above, unfortunately we haven’t heard Obama talk much about mark to market accounting. Now these people are discussing an outright abandonment of mark to market. What a bunch of nonsense:

    “Big banks are struggling to survive — shares of Citigroup, once the world’s largest bank, closed at $1.02 today — because their balance sheets are poisoned with assets for which no market exists. Chiefly, the mortgage-backed securities based on lousy mortgages. No one wants to buy them right now, so that means no market exists.

    Some day, there will be a market for those securities. But until there is, banks have to account for them at fire-sale prices, and that’s what’s making the banks sick.”

    It’s very simple. There exists no market because nobody wants to buy them. If nobody wants to buy something its price is 0.

    These banks prefer to live in a fantasy world for as long as they believe they can fool the taxpayers.

    Having Bernanke and Geithner together on any panel or board is definitely a scary thought.

  5. It seems to me that the banks want to get rid of mark to market so that they can hide their insolvencies by marking up the mortgage-backed securities. The problem is that housing prices will be going down for years to come and will not be recovering any time soon. Commercial real estate is going to follow residential down. Any markup they would do would be a joke. The cat is out of the bag. Even if they do suspend the rules and the banks mark up these assets, it won’t fool anyone. Everyone knows they are insolvent. They aren’t addressing the problem or even admitting what the problem is. They are just desperately trying to get the Ponzi scheme going again.

    Sheila Bair scares me as much or more than Geithner and Bernanke. Did you see the plan she was floating last year to allow the FDIC to make 5-year payment-free “loans” to up to 1 million already underwater mortgage debtors so that they could repay up to 20% of the money they owed on their mortgages?

    FDIC Finalizing Direct Home Loan Plans

    Thank God that didn’t go anywhere! Every time she opens her mouth I have a panic attack. ;) So much for instilling confidence!

  6. I think Bair’s 50 billion loan to homeowners is a great idea. So long as she does it with her own damn money and leaves us alone… :)

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