Monday, October 06, 2008
Mark and inwardly digest
The Chancellor has just finished taking questions in the Commons on the Government's response to the credit crunch. He rejected a proposal of George Osborne's to dispose of mark-to-market, the accounting rule which forces banks to value their financial assets according to a market which is currently utterly stuck. It was introduced after the Enron scandal revealed that systematic abuse of accounting principles could permit a company to mis-report its value for a long period before being caught out. But it relies on an orderly market, and we don't have one at the moment.The Chancellor later said that the assets obtained from the public receivership of Bradford & Bingley would generate good returns which would be used, as was proper, to pay off the B&B's creditors, and commented that the main problem with B&B was that it had assets which had a very low value. Clearly, he thinks that their true value is higher than the currently-quoted market value.If I had been in the Commons, I think I would have wanted to ask, "Mr Speaker, can the Chancellor explain to the House how it is that the market provides an accurate value of the mortgage book of Barclays Bank, but not of exactly similar assets held by the Government?"