“Mark to Market” Explained

You’ve probably heard this expression bandied about in recent months, but may not have been entirely clear on its meaning. If so, Marketplace® Senior Editor Paddy Hirsch goes to the whiteboard to provide the following explanation:

It’s worth understanding a little better because one of the more significant developments arising from this week’s G20 Summit in London was the decision to change U.S. accounting rules so as to move them away from the “Mark to Market” principle and thereby effectively “fix” the balance sheets of banks damaged when the housing bubble collapsed. All of those “toxic assets” sitting on their books can presumably now be valued at whatever the banks imagine them to be and claim they’re worth. Cool deal — for the banks!

There are different conclusions one could conceivably draw from this depending on the motives ascribed to various parties involved, and the particular ideological construct (political/economic) used to evaluate it. On the one hand it could be argued that it undermines the intent of Treasury Secretary Geithner’s “public private partnership investment program” that purportedly attempts to free up credit and recapitalize technically insolvent banks by arriving at some reasonably objective market value of their assets, but it could also be seen as an inventive way of hitting the reset button that wipes out the banks’ debt at taxpayer expense while allowing them to profit from the subsidized re-purchase at auction of their now artificially overpriced assets.

Harper on the U.S. Dollar

Asked whether he would like to see a different global reserve currency from the U.S. dollar at some point in time, Stephen Harper had this to say:

“I’m torn on that issue. Um, I’m torn on that issue. It’s a tough issue. You know as we see — um, as we see, uh, uh… the strength, a greater global spread to demand and to, uh, economic wealth, there may be to some degree an eventual inevitability of, of you know, other economies’ currencies becoming also, of playing some role in the reserve currency. But look, my view is that, as I’ve said before, the United States is our, err, closest neighbour and, um, friend and ally, and, uh, you know, in the short term I’m, I’m happy to see, uh, the United States being a reserve currency because I, I think American leadership is good for Canada and good for the world.”

One has to wonder why Harper is “torn on that issue” and what made him agonize over it with such apparent difficulty.