Spain needs US $125 billion to bail out its banks, due to the collapse in the property market. Report. Other countries, e.g. Ireland, America and Japan, have also suffered similar difficulties due to the bursting of the property bubble.
Many people may not realize that the financial crisis is caused by the ridiculous accounting policy called "mark to market". When the property prices appreciate, and this is called a bubble, all owners and the banks report billions of dollars of "wealth" being created. When the property prices fall, we have a financial crisis!
We are destined to have financial crisis, so long as the ridiculous accounting treatment called "marked to market" is still being followed. Many decades ago, it was the practice to keep assets at book value and to provide for depreciation in the value of the assets. It was not prudent to mark the assets to their "market value", until the assets are sold. This is a more sensible approach.
This will force the asset owners to sell their assets to realize their market value. They will find that the so-called market value is not the real value, as there are limited buyers for the large holdings of assets among the owners who are keen to realize their profits. This is the real world, and it will not show the asset values appreciated madly, and will not encourage over-investment that will lead to the banking crisis now faced by Spain, but was quite common in the other countries.
To have a more stable financial system, we need to remove the ridiculous practice of "mark to market".
Many people may not realize that the financial crisis is caused by the ridiculous accounting policy called "mark to market". When the property prices appreciate, and this is called a bubble, all owners and the banks report billions of dollars of "wealth" being created. When the property prices fall, we have a financial crisis!
We are destined to have financial crisis, so long as the ridiculous accounting treatment called "marked to market" is still being followed. Many decades ago, it was the practice to keep assets at book value and to provide for depreciation in the value of the assets. It was not prudent to mark the assets to their "market value", until the assets are sold. This is a more sensible approach.
This will force the asset owners to sell their assets to realize their market value. They will find that the so-called market value is not the real value, as there are limited buyers for the large holdings of assets among the owners who are keen to realize their profits. This is the real world, and it will not show the asset values appreciated madly, and will not encourage over-investment that will lead to the banking crisis now faced by Spain, but was quite common in the other countries.
To have a more stable financial system, we need to remove the ridiculous practice of "mark to market".
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