Quote:
Originally Posted by einreb
This is all fuzzy to me, but MTM means that if you have a 'thing' that currently does not have a buyer... then it has no value. However, some of these 'things' still produce income and if held to maturity may still be paid back... so it has some value, no?
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I believe the official name for MTM accounting rules is "Fair Value" accounting. In the case of a 'thing' that has no buyer, but generates cash flow where the timing and amounts are reasonably assured, then it does have a value (and can be quantified using a discounted present value method).
I think that the problem with the CDOs and other mortgage backed derivatives is that there was so much uncertainty surrounding the timing or amount of cash flows that it was not possible to value them in this manner, so firms had to look to the secondary market = 0.
Agree that extreme care must be taken in messing with Fair value accounting rules as they should result in more transparency. A slackening of rules certainly could allow some of the mess to be "swept under the rug."