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A shattering moment in America's fall from power

"There has been a good deal of talk in recent weeks about imminent economic armageddon. In fact, this is far from being the end of capitalism. The frantic scrambling that is going on in Washington marks the passing of only one type of capitalism - the peculiar and highly unstable variety that has existed in America over the last 20 years. This experiment in financial laissez-faire has imploded."

So wrote the author of the blog "Circle of 13," http://circleof13.blogspot.com/2008/10/shattering-moment-in-americas-fall-from.html But it is not entirely true. It may have laissez faire in the sense that no one was interfering in what Wall Street was doing; but that would be extremely misleading. Washington set the rules first, then, perhaps, did not interfere in the meltdown that Washington itself set in motion.

"U.S. Rep. Candice Miller is calling for the elimination or suspension of some current accounting practices as a way to improve the situation on Wall Street.

"One of those, she said, is the elimination or suspension of so-called mark-to-market accounting practices in relation to mortgage-backed securities. Mark-to-market accounting rules require assets to be valued at their current market value on a company’s books – and many believe mortgage-backed securities’ values have actually fallen below their inherent worth." freep.com http://www.freep.com/apps/pbcs.dll/article?AID=/20080930/BUSINESS07/80930061

"Buried within the furore that has gripped Wall Street and other markets around the world, a request was submitted to suspend the practice of mark-to-market ..." wrote Business Day. http://www.businessday.co.za/articles/companies.aspx?ID=BD4A854855

"Under the 'mark-to-market' rules banks value profits based on an estimation of future income based on a calculation of what would be raised if all loans and mortgages were sold in the market at the best possible price. "A number of politician and economists believe this practice has been a key factor in the decimation of the banking system because it does not reflect the true value of the assets in turbulent market conditions."citywire http://www.citywire.co.uk/professional/-/features/sector-watch/content.aspx?ID=316017

"All year, many bankers have asserted that it was unfair that accounting standards required them to value mortgage securities they own at market value. The frazzled market, they said, was unrealistic about the long-term worth of those assets.
"Markdowns of mortgage assets have, of course, devastated the finances of leading banks.
"Some in Congress who agree with the banks now want to suspend mark-to-market accounting altogether and give lenders much more leeway in valuing mortgage securities at levels that, in theory, more realistically reflect what the assets will return over time. Some House Republicans are pushing harder to change the rules. The Republican Study Committee, a group of House conservatives, has proposed suspending mark-to-market accounting until the SEC "can issue new guidelines that will allow firms to mark these assets to their true economic value." "These conservatives' votes could be crucial in the next go-round of the bailout bill.
Former House Speaker Newt Gingrich, now a fellow at the American Enterprise Institute, on Monday published a piece on Forbes.com entitled 'Suspend Mark-to-Market Now!' Read it here." LA Times http://latimesblogs.latimes.com/money_co/2008/09/the-angry-debat.html

It was not the mortgage industry that set these accounting practices. These practices were changed by Congressional approval of SEC policy. And the practice of sub-prime lending was furthered by the infusion of excess cash into the economy by the Fed during the final years of the Greenspan Administration, although at times it recognized its own mistakes and tried to tighten the prime rate by which lenders set their own loan rates.

Far from being an "experiment in laissez-faire" which imploded, it was once again the long arm of government intervention and interference which set the wheels of the implosion rolling down the mountain, out of the control of the very market which ought to know how to set its own accounting practices for the benefit of its stock holders, and that benefit is, in the end, also to the benefit of borrowers because if the stock holders are not making a profit, the borrowers are not borrowing.

In this case, the stock holders, the very people who are the heart of America, the hard working or retired men and women who have sunk their extra money into retirement hedges and funds and other Wall Street opportunities, are the losers. But this could not have been the wish of those who run Wall Street: many of the top executives who get so-called "Golden Parachutes" got those parachutes in the form of company stocks, which are not as worthless to them as to the middle class who trusted them to stand up to the meddling of politics into the affairs of economics.

Note: I will be the featured speaker at the Center For Inquiry (CFI) meeting, October 16, 2008, in Portage, Michigan. The topic is "Atheism as a 'Religion' Protected by Courts According to the Establishment Clause" CEC

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