Two Biggest Things Still To Do

摘要

The government's creation of a mechanism to take on bad assets from banks and other financial institutions has stopped a catastrophic meltdown of the system. But the two big viruses remain untreated. The most immediate is the mark-to-market, or so-called fair-value accounting, rules that regulators have been enforcing since the early 1990s. The idea of writing down the value of financial assets when the market for them is seriously impaired or doesn't exist is sheer folly. The actual losses from subprime mortgages and other exotic instruments were large but absorbable. Packages of subprime mortgages came to about $1.2 trillion. At worst, perhaps half of these-$600 billion-might ultimately go bad. Compare that number with the $56 trillion of net assets of American households. Actual losses on exotic instruments, moreover, won't come near the value of those subprime mortgages.