Friday, March 13, 2009

Mark to Market Changes - April Business

In the CMBS world, we have very tangible examples of how Mark-to-Market rules (FAS 157) are putting undue pressure on the market. It is easy to point to a CMBS deal with a single asset trading at 60 cents on the dollar, while a non-cusip loan with essentially the same collateral trades at 98 cents on the dollar. Obviously there is something wrong with that valuation. You'll find folks have very strong opinions on both sides of the issue, and I will not argue its fallibility or utility, except to state the obvious - it doesn't work in its current form.

Robert Hertz, the FASB Chairman, indicated yesterday in front of Rep. Kanjorski (and the rest of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises) that there would be significant changes within the next 3 weeks.

The same folks that have strong opinions regarding the FAS 157 rule, also have strong opinions about the impact of any changes. Numbers are quoted, arguments are made regarding the relatively small portion of held-for-sale assets that are affected, etc., etc. It is a broad issue, no matter what numbers you're looking at. Any change could substantially move markets.

Full disclosure: I try to be somewhat non-biased about things, but I think FASB is full of idiots.

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