By John Tamny RealClearMarkets
Back during the Internet IPO boom, companies ranging from Netscape to Priceline to Expedia went public with no earnings to speak of whatsoever. Retail giant Amazon.com was jokingly referred to as ‘Amazon.org’ due to its lack of profits. Despite their heavy losses, investors bought into the aforementioned concepts based on the belief that in the future, their losses would turn into gains.
This is notable today given all the talk about mark-to-market (MTM) accounting. To its opponents, MTM lies at the heart of our economic difficulties. MTM naysayers argue that an accounting measure which requires firms to value assets at market prices discovered in very thin markets is in particular driving banks into insolvency. If a more liberal form of accounting were applied, presently insolvent banks would be healthier on paper and solvent.
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