Bob McTeer quotes William Isaac, FDIC testimony on Mark to Market accounting. William Isaac was FDIC Chairman in 1980s. Here is a chart showing the difference between actual losses and the losses that need to be reported under Mark to Market accounting rules.
Mortgage Based Securities Losses
MBS description:
• The Bank holds a pool of MBS totaling $3.65 billion as of December 31, 2008.
• The underlying loans are not sub-prime and are generally quality loans (average of
approximately 17 months of seasoning, original FICO scores of 749, and original loanto-
value ratio of 73%).
Losses based on MTM:
• The MBS has subordinated collateral of $172 million. The amount of subordinated
collateral exceeds the worst-case loss projections, which means the Bank does
not expect to incur any losses on its senior MBS positions (positions that MTM
rules have required be written down by $913 million).
• The MTM write-down required on this pool is more than nine times the maximum
estimated lifetime losses.
Source: http://www.bob-mcteer-blog.com/william-isaac-on-mark-to-market/
Original Testimony: PDF
