Biotech Values

[DewDiligence]

Re: MtM accounting and Buffett’s take

Warren Buffett is a good man, but in political matters follows the Democratic line every time, so consulting him on matters like this is pretty silly.

In what way is Buffett’s recommendation on MtM accounting politically motivated? It strikes me as simple common sense.

To reiterate, Buffett wants to retain MtM accounting on financial statements so that investors have this information at their disposal. However, Buffett thinks it’s dumb for MtM accounting to drive regulatory capital requirements for banks and insurance companies, and I fully agree.

Using MtM as the basis for regulatory capital requirements is highly pro-cyclical, and it has likely been one of the biggest causes of the market meltdown in the financial sector. Although much of the damage has already been done to money-center banks and insurance companies (and, through guilt by association, to such companies as GE), rectifying the regulatory MtM foolishness ought to bring on a more level-headed investor psychology toward stocks in the financial sector.