Famed business magazine publisher Steve Forbes says there's a relatively simple way to help solve the financial mess on Wall Street — ease mark-to-market accounting rules.
"Short-term assets should not be given arbitrary values unless there are actual losses. The mark-to-market mania of regulators and accountants is utterly destructive. It is like fighting a fire with gasoline," Forbes wrote in the Oct. 6 issue of Forbes magazine.
Forbes recommends that investors think of the mark-to-market mess by using the following metaphor: A person buys a house for $250,000 and then takes out a $250,000 fixed-rate mortgage for 30 years. The person's income is adequate to make the monthly payments.
"But under mark-to-market rules, the bank could call up and say that if your house is not sold immediately, it would fetch maybe $200,000 in such a distressed sale. The bank would then tell you that you owe $250,000 on a house worth only $200,000 and to please fork over the $50,000 immediately or else lose the house," said Forbes.
"Absurd? Obviously. But that's what, in effect, is happening today. Thus, institutions with long-term assets are having to drastically reprise them downward. And so the crisis feeds on itself."
Forbes also says the Securities and Exchange Commission should immediately reverse its "foolish decision" to get rid of the so-called uptick rule in short-selling.
"That would provide a small road bump to the short-selling that's helping to destroy financial institutions," he says.
With the $700 billion Wall Street bailout package waiting for a second go-around in Congress after winning approval in the Senate, Forbes' idea may well get a hearing in Washington. A poll published on Tuesday by Rasmussen Reports indicates that consumer confidence actually increased after the unpopular bailout failed.
"It's obvious that Americans aren't stupid and won't support this bailout," Rush Limbaugh, said during his broadcast, also on Tuesday.
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