Fannie/Freddie Politics Board (Politics Allowed~Non-Moderated)

[955]

"They [GSE's] were insolvent on a Mark-to-Market basis." - Mark Zandi
1:14:45 mark
https://www.aei.org/events/hidden-plain-sight-really-caused-worlds-worst-financial-crisis-happen/

Was Mark-to-Market accounting a fair standard to estimate the value of GSE illiquid assets?

The 2008 Financial Crisis
Mark to market accounting may have worsened the 2008 financial crisis. First, banks raised the values of their mortgage-backed securities (MBS) as housing costs skyrocketed. They then scrambled to increase the number of loans they made to maintain the balance between assets and liabilities. In their desperation to sell more mortgages, they eased up on credit requirements. As a result, they loaded up on subprime mortgages. That was one of the ways derivatives caused the mortgage crisis.

The second problem occurred when asset prices started falling. Mark to market accounting forced banks to write down the values of their subprime securities. Now banks needed to lend less to make sure their liabilities weren't greater than their assets. Mark to market inflated the housing bubble and deflated home values during the decline.

In 2009, the U.S. Financial Accounting Standards Board eased the mark to market accounting rule. This suspension allowed banks to keep the values of the MBS on their books.6? In reality, the values had plummeted.

If the banks were forced to mark their value down, it would have triggered the default clauses of their derivatives contracts. The contracts required coverage from credit default swaps insurance when the MBS value reached a certain level. It would have wiped out all the largest banking institutions in the world.

https://www.thebalancemoney.com/mark-to-market-accounting-how-it-works-3305942

Were the GSE's really insolvent? That was the justification used to place F&F in conservatorship in the first instance.

Mark to market accounting worsened the Great Depression. The Federal Reserve noted that mark to market might have been responsible for many bank failures. Many banks were forced out of business after they devalued their assets. In 1938, President Roosevelt took the Fed's advice and repealed it.5

https://www.thebalancemoney.com/mark-to-market-accounting-how-it-works-3305942