Statement on Mark-To-Market Accounting Rules

Statement on Mark-To-Market Accounting Rules

March 12, 2009
Statement on House
Financial Services Committee Hearing on Mark-to-Market Accounting

Statement of John Berlau

Director, CEI Center
for Investors & Entrepreneurs

 

Washington,
D.C., March 12, 2009—The House today
heard testimony on a critical aspect of the Wall Street financial crisis:
mark-to-market accounting rules. 

Statement
of John Berlau Director, CEI
Center for Investors
& Entrepreneurs 

In his interview with business news network CNBC this week,
legendary investor Warren Buffett became yet the latest expert to opine that
mark-to-market accounting is adding fuel to the fire in our financial crisis.
He joins everyone from conservative Republican Steve Forbes to Democratic
economic adviser Mark Zandi who argue that mark-to-market exaggerates losses
and results in tighter lending when it is used to measure regulatory capital in
illiquid markets for instruments such as mortgage-backed securities. 

Congress and the White House have tried every “solution” in
this crisis – from billions in bailouts to partial nationalization of banks –
but the cost-free step of suspending these recently mandated accounting
standards remain the third rail. There are worse things than Congress
interfering in the setting of accounting standards when a bipartisan group of
experts says the standards are inaccurate and contributing to the crisis. 

It’s time for Congress to assert control from the
bureaucrats who make accounting rules when those rules are enforced as part of
the laws that Congress itself has made. Hopefully, the hearing today will
explore some concrete alternatives to mark-to-market, and lawmakers will act
accordingly.