To this day it’s said that mark-to-market (MTM) accounting rules are what caused existential troubles for banks and investment banks back in 2008. It sounds so compelling at first glance, but only until readers stop and imagine what the outlook for financial institutions would have been without MTM. No different.
As Blackstone co-founder Stephen Schwarzman observed in his excellent memoirs, What It Takes, no amount of protest from inside Lehman Brothers about the quality of its assets could overcome the underlying reality of how distressed they were at the time. Markets speak, always. And with or without accounting rules.
It’s worth thinking about as a Federal Reserve still traumatized by 2008 foists all manner of “stress tests” on banks as a way of allegedly ensuring their health during times of trouble.
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