Is Mark to Market Accounting Making Things Worse?
Now that we understand what off balance sheet entities are and some of the questions surrounding them, the next major topic we will study is the role that something known as mark to market accounting rules are playing in the crisis. As you have probably heard many times in the press but may not have noticed, the hits that many of these companies are reporting to their balance sheet are coming not from realized losses on these debt instruments held in the off balance sheet entities but from write downs in the value of those instruments. Accounting rules require that companies account for the value of these instruments by marking them to market or in other words reporting any loss or gain in the instruments value in the tradable market on the income statement as if it were a realized loss or gain even if the company continues to hold the instrument. This is a very important point to understand for several reasons. 1. In order for a company to mark an asset to market there needs to be a m
