Mark-to-Market. We have been hearing this phrase all over, for the last few weeks. So, let’s explore it some more.

For starters, what is mark-to-market? According to wikipedia:

Mark-to-market or fair value accounting refers to the accounting standards of assigning a value to a position held in a financial instrument based on the current fair market price for the instrument or similar instruments. Fair value accounting has been a part of US Generally Accepted Accounting Principles (GAAP) since the early 1990s. The use of fair value measurements has increased steadily over the past decade, primarily in response to investor demand for relevant and timely financial statements that will aid in making better informed decisions.

Following up on my previous post about the much-welcomed transparency from the Treasury regarding TARP funds, on Thursday the Treasury Department released a Google Maps mashup of TARP recipients:

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In a day and age when confidence is shaken by the daily doldrums of the markets, and a bullish day is celebrated as some form of stimulus bill, the recent actions by the Treasury and the Obama administration are welcomed. The treasury announced the launch of a website - FinancialStability.gov - where they have started to provided unprecendented transparency into the financial transactions conducted by the government on the road to stabilizing the financial system.

BillShrink has a very insightful blog post. They breakdown consumer spending, according to various categories. What’s interesting is to see how closely consumption is linked to income. Now, I know that’s obvious and economists/policy makers design economic policies & tax incentives to exploit this natural phenomenon, but it’s always nice to see a nice graphical version of the concepts that we know and take for granted.

Define Moral Hazard We know that there is an incentive for firms that are either too important or ‘too big’ to fail, to act wrecklessly because they know that they will get bailed out. Whether the individual is a highly trained, very unique doctor like House, or a bank/financial institution that is too important to the system to fail. Often times, their wreckless actions puts the regulators or people responsible for them in a precarious situation where they have to bail them out or save them. What about the central banks though? In a world where financial institutions all over the world are as interconnected as financial institutions in the same neighbourhood, how do we decide which central bank should do the heavy lifting? It is no secret that if the Fed didn’t take some of it’s extraordinary measures the financial system would have imploded. That is no longer debateable. The question is, why aren’t other central banks ignoring ‘self-interest’ agendas and cooperating with the whole system. Jean-Claude Trichet (check spelling) has taken a hard nosed stance against Fed type bailout actions. The irony though is that the only reason he can do that, is because Bernanke has already done the heavy lifting. Had bernanke not done what he has done to date, then surely at the very least the ECB and Bank of Japan and other central banks would have had to do some of the lifting. So by Bernanke doing what he did, he created a Moral Hazard for the other central banks - because now they can act out of their own self-interest - because they know the entire house won’t collapse. Bernanke acted on behalf of the house. Trichet is acting on behalf of his floor.   All in all, can Moral Hazard be completely eradicated/defeated in today’s integrated global economy?

Page Tutor has an awesome post where they illustrate what $1 trillion dollars looks like. It is reposted below. ——–

All this talk about “stimulus packages” and “bailouts”…

A billion dollars…

A hundred billion dollars…

Eight hundred billion dollars…

One TRILLION dollars…

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I’d take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

It’s about time! Reuters is reporting that:

…The Obama administration autos task force on Monday rejected the turnaround plans of General Motors Corp andChrysler LLC and warned both could be put through bankruptcy to slash debts. The announcement by the White House autos panel headed by former investment banker Steve Rattner marked a stunning reversal for management at both automakers and for GM investors and creditors who had bet on a softer line.

  [caption id=”” align=”aligncenter” width=”453” caption=”Summers, Bair, Bernanke & Geithner (Credit: Cleveland.com)”] [/caption]

From time to time there are those decisions/situations that come along, that challenge us to truly examine our morals/values/ideologies. If we are in a position of power, those morals/values/ideologies could have ever-lasting repercussions on many people. In Henry Paulson & Ben Bernanke’s case, it was billions of people; their ‘trigger’ moment was the battle between Moral Hazard & Systemic Risk.

With the economy crumbling around us, the world going crazy, everybody blaming anybody else, this is my way of trying to make sense of it all. Sometimes there will be links, sometimes there will be analysis, and other times the occassional rant. All the time though, they will either be my thoughts - or on my thoughts. You can also feel free to follow me on twitter @marcgayle.