Satyajit Das's Blog - Fear & Loathing in Financial Products Mon 2010-04-05 15:01 EDT
Mark-to-Make Believe: Living on a Prayer
...Recent research indicates that MtM accounting may, in fact, distort the price of assets...The research highlights that MtM accounting is pro-cyclical and creates volatility of asset values through complex positive and negative feedback loops. Under normal market conditions where asset markets are liquid, MtM accounting works benignly. In volatile markets, where behaviour becomes linked by a common factor such as disclosure required by MtM accounting, co-ordinated actions of market participants can easily lead to sharp movements in asset prices. The process distorts market prices and ultimately the firm's financial position and value.
fears; financial products; lively; loath; Make-Believe; marked; prayers; Satyajit Das's Blog.