tag:blogger.com,1999:blog-2171294815895801587.post2601635993876338965..comments2023-10-22T13:06:32.952-04:00Comments on Organizing Grievances: The invisible hand of whateverwobbliehttp://www.blogger.com/profile/13840385151170176977noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-2171294815895801587.post-44452582429856933672009-04-03T20:12:00.000-04:002009-04-03T20:12:00.000-04:00OK, I think the accounting rule change makes somew...OK, I think the accounting rule change makes somewhat sense, at least according to the link you provided (of course they will be abused). <BR/><BR/>Suppose we both own a house together in the SC&A Real Estate trust. As a matter of fact, we rent the house out to someone who has signed a long term lease. Now, of course if we want to sell the house before midnight tonight it might be difficult to find a buyer who will put up a lot of money for it, in particular if that buyer knows that we absolutely have to sell (and there will be no time to inspect the house etc.) <BR/><BR/>Now the question is whether it is reasonable to assume the price this buyer will offer to be the fair value, if we don't even want to sell the house in the medium term and we have some decent income from the lease. I believe that this would not be reasonable.<BR/><BR/>So I think it makes sense that if banks value assets such as mortgages e.g. by the value of the expected payments IF they don't want to sell immediately (and I think right now well above 90% of mortgages are being paid on time).<BR/><BR/>However, suppose that in our example either of us can demand, at any time, to be paid our share of the house in cash. Then we would have to mark the house to market because we have to always account for the possiblity that we have to sell the house. So if a bank has assets that it might have to sell, because a customer wants to withdraw money from an account then those should be marked to market.<BR/><BR/>That said, I am certainly not convinced that the new accounting standards will produce any sort of accurate and fair accounting (maybe fair and balanced accounting, but who knows)Anonymousnoreply@blogger.com