RUSH: Here’s Brad in Severn, Maryland. Great to have you. Welcome to the program.
CALLER: Thank you, Rush. I’m glad you moved me ahead of Carol.
RUSH: She asked for it.
CALLER: She did indeed.
RUSH: There you have it. Okay.
CALLER: I was just calling about this issue with the execs at AIG, and I think this is another one of the numerous plays that the Obama administration is making, because it really is absolutely pointless. They could solve a lot of their problems with a few accounting moves. One of them is getting off of the mark-to-market accounting and going to a five-year average.
RUSH: Right. Now, while I was on the charity golf circuit last week didn’t they float the idea, didn’t Obama float the idea that they might someday relax mark-to-market, someday lower the corporate income tax?
CALLER: Yeah. I mean, but, once again, it’s a talking point that he was going to the audience that he was working with at the time. He’s not going to do that. Remember, Rahm Emanuel said we need a crisis. If they do that, it will solve the crisis.
RUSH: But he said it because he wanted a market uptick because his approval numbers are heading down, and he wanted the market to be up so he can say his stimulus plan is working.
CALLER: True.
RUSH: Would you explain, I mean, I could do it but frankly I need a little break here. Could you explain mark-to-market to people in the audience who may not understand what it is? The people in Rio Linda and Port St. Lucie.
CALLER: Basically, it is a current evaluation of an asset. For example, I got a letter from my mortgage company the other day telling me my mortgage, my house was valued down because that’s the current value. If they used the average, the five-year average, it keeps it at the trend. It moves things slower. Mark-to-market is very volatile, and it goes with the changes, it goes up, and all these companies like AIG, all of a sudden their assets went up the last few years. They had a lot more money to loan out. Now you get a little bump and things go down, all of a sudden they’ve loaned out too much money, and their ratios are off. And that’s what’s caused a lot of the problems.
RUSH: That’s pretty close. Let me give it a shot here for those of you — this man’s a highly technical expert in this, I can tell, and I want to try a layman — see, this is another thing that I do. I make the complex understandable. First thing you have to understand, mark-to-market is a direct result of Enron. So as often happens, we had a scandal, we had a crisis, the government moves in, and if you could imagine a meter with the arrow pointing straight up is zero, we’re not changing anything, so Enron happens and the meter goes way far one direction, ‘Oh, no, we’re on a wreck, oh, look what Enron did.’ So to fix it, rather than take the meter back to zero, we take it all the way the other direction in the extreme, and that gave us Sarbanes-Oxley and mark-to-market. Mark-to-market simply means that financial institutions, banks, corporations, have to value their assets according to the value they could get for them that day.
In the past, before mark-to-market rules were invented by Elmer Fudd and his gang at the House of Representatives, the market valued assets, and corporations were allowed to take out a five-year look down the road and say this asset’s going to be worth X and their balance sheet, the P&L, profit and loss, would reflect assets based on the best estimates of the value of assets five years down the road. Well, today, you can’t do that. You have to mark the asset at its current value. And these banks, mark-to-market, they’re holding worthless paper, all these worthless mortgages. One of the things the bailout was supposed to do, that Geithner was supposed to have done, and this is the key, Geithner was supposed to have placed a value with an auction or something on these toxic assets, even if it was a penny, even if it was ten cents, even if it was 50 cents on the dollar. They have not done it. So these toxic assets remain worth nothing, and the balance sheets of these banks and corporations that hold these instruments are, therefore, worth nothing.
In the old rules, they could assume that at some point in five years, there’s going to be value with these assets, and they’ll be able to sell them, move them, or something. Now, this was abused, apparently, by Enron, because they look down the road, and they said our asset value is 500 gobzillion, when it was zero. And they were selling stock, and they were in debt and so forth. So rather than just deal with Enron and people who were doing what they were doing, Sarbanes-Oxley came in and made every corporation heel to mark-to-market. That’s why there was a market uptick last week, because when Obama’s teleprompter told him to float the idea that they might relax mark-to-market, bam, there was a huge uptick. Do you know, folks, there are a number of things, if mark-to-market were banished or even altered a bit, you could cause an immediate, noticeable economic recovery in the financial sector ’cause they’d have asset value again, on paper, but they would still be able to use it for borrowing, for credit and so forth and start taking risks again. It’s the same as if, you want to fix health care? It’s real simple. Loser pays. Tort reform. Loser pays, and all of a sudden you’re going to have a lot of prices come down because medical malpractice insurance would plummet.
There are so many simple things we could do here, but none of it would empower and entrench Obama’s teleprompter and the Democrat Party. I’ll have details on this tomorrow. Mark Sanford, I like Mark Sanford, I’ve met him a number of times, governor of South Carolina. Mark Sanford finally put up his hand, ‘I’m not taking bailout money. I’m not taking it.’ There’s an unconstitutional provision in the Porkulus bill, and that is if a governor says no, Congress can authorize or order a state legislature to override the governor’s decision. That violates the Constitution. That’s unconstitutional. That violates the checks and balances, separation of powers. So Sanford said, ‘Okay, I’m going to take some of the money to retire my state’s debt.’ Peter Orszag, OMB, Obama administration, no, no, no, no, you can’t retire debt with what we’re giving you. You have to spend it the way we say. I’m not making it up. That’s who these people are. So you’re giving the states money and the governor of South Carolina, ‘Okay, I want to retire some of my state debt.’ ‘No, you can’t.’ You have got to spend it on new welfare cases. You have to spend it on whatever else that the Obama administration determines. This thing is not about creating jobs, it’s not about stimulus. It’s about the expansion of federal power.