On CNBC Art Cashin, Floor Manager for UBS, points out that FASB 157 requiring mark to market, passed November 15, 2007 a week after the all time high in the Dow at 14,000. The market has been going south every since. Well none of us are saying FASB 157 alone caused that, decades of overspending and unrealistic credit extension caused that. But Larry Kudlow also noted that his friend Chris Cox has been a terrible SEC chair.
Mark to market requires as we know from Available for Sale Rules, that securities be marked to market and the loss taken to current income. FASB 157 extended that AFS rule to just about everything,
Okay, let's suppose one house on your block sells in a distress sale for say $20 K less than its original selling price of $175K. Do we require everyone mortgage holder to mark down their collateral for every house on the block as a result of that one sale. FASB 157 says we have to do that.
The result has been huge write downs resulting in non operating losses. These non operating losses get reported as real losses and then e/s drops and then the price earnings ratio drops, and then the market drops 50% and then you are told tough luck on getting a job. Swell.
As Cashin said the other day, it would not cost any money to drop FASB 157 for a few months and see what happens, it is hard to imagine the stock market would get worse for the experience.
Professor Elam 
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