Posted by
Andrews on Wednesday, October 08, 2008 4:02:28 PM
As a followup
to my earlier post on Thomas Frank's arguments about the bailout, I have to point to
another essay of his. This one is a critique of the Republican bailout plan. Now, I won't argue about it too much, as I think the bailout
is a bad idea in general. But there is one cheap shot he takes that is particularly foolish.
Here is his quote:
Back at the study committee's Web site, I see conservatives call to
"Suspend 'Mark to Market' Accounting." Suddenly our "free-market
protection" gang has decided it's unfair to make companies value their
MBSs at . . . the market price. Somehow the all-seeing market has gone
irrational, and so companies must be allowed "to mark these assets to
their true economic value," meaning, one might say, to mark them
however they please, a practice that, to put it shortly, is what got us
into this mess in the first place.
This is a cheap shot, and nonsensical to boot.
First, in a free market, there would be no rules about how accounting should be done, companies would be able to use whatever accounting rules made sense to them. Stock markets could set rules for their members, but these would be competing standards, as investors could prefer the market requiring the best accounting, or they could get additional information from their brokers or the companies, not using the standards the market establishes.
Our problem is that the government
MANDATES a type of reporting and allows no other. Worse still, since Sarbanes-Oxley was passed post-Enron, companies are afraid of using any but the most bland, vanilla GAAP, and the law encourages them to provide only the most basic reports. So, in general, assets are listed at purchase price.
And that stupidity actually fueled this crisis. Rather than being devalued when they proved to be non-performing or lacking adequate collateral, these loans continued to be listed at purchase price, inflating the paper value of the companies holding them and deluding investors.
So, what this calls for is an easing of government mandates, allowing assets to be listed at a realistic price rather than the misleading purchase price. Neither is more "free market" than the other. The "free market" would not mandate any type of reporting. So to accuse Republicans of being opposed to the free market for preferring one form of accounting to another is just an absurd cheap shot.
But enough of Mr. Frank. It is evident he values his own political orthodoxy more than accurate reporting. So I think I will refrain from reading any more of his work, as it seems a poor use of my time.