To the Editor:

Mark-to-market accounting is a reflection, not a cause of the current market crisis ["Viewpoint: Repeal Mark-to-Market to End Credit Crisis," March 4].

Its repeal would not end the crisis or increase stock prices. Rather, it would return us to the dark ages of reduced transparency and heightened investor mistrust.

Balance sheets measure money spent and not value. Some assets actually fall below par and do not recover. These declines are due to changed fundamentals and not just temporary liquidity factors.

For example, few believe housing prices will return to early 2007 inflated levels anytime soon. If you do, then banks should not be asking for updated appraisals when refinancing homes.

Keep in mind that Japanese banks ignored reality by extending and pretending in the 1990s. They are still waiting for the recovery. Investor recognition of the permanent loss is reflected in the large stock price discounts to tangible book value at many institutions.

The real issue is not accounting but the regulatory capital impact of mark-to-market. This can be resolved through regulatory forbearance without impacting mark-to-market.

Alternatively, the capital rules can be amended. An example is provided in the regulatory capital treatment of unrealized losses from available for sale assets, which are excluded for core Tier 1 calculations. This could be extended to other portfolio assets, as well.

Finally, keeping investors in the dark is not a solution but a problem. Mark-to-market is the wrong scapegoat at the wrong time. The problem is bad investments, not bad accounting. We should focus on what counts and not on how it is counted.Joseph V. Rizzi
Senior investment strategist
CapGen Financial Group
New York

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