Mark to market; Mark to maturity

[bobfl]

So you are a bank and you want to have the safest investment for your reserves. That would, in theory, be US Treasuries. But the rapid rise of the Fed Fund Rate made the old Treasuries lose value quickly.
Now you have to mark down the value of those Treasuries and reflect a big loss.
If you had investments, as some institutions had, that you could switch to "mark to maturity" you would not have to take a rapid loss markdown.

Remember when short term "Mark to Market" caused major losses in 2008? Although the investments reversed when the economy recovered, the damage was done.

Didn't ever hear the institutions brag that they showed major profits when the economy recovered and they could mark them back up. :-)

There were companies that did buy some of these depressed securities and made huge profits when they reversed.

[oldskeet]

Hi bobfl, There were investors that made some good money doing what you described above as well, me included. Perhaps, banks and others will be able to mark to maturity sometime in the future, perhaps not. It is just one of the quirks that takes place and comes with putting capital to work. Let's see if changes come.

[bobfl]

Mar 14, 2023 13:46:35 GMT oldskeet said:

Hi bobfl , There were investors that made some good money doing what you described above as well, me included. Perhaps, banks and others will be able to mark to maturity sometime in the future, perhaps not. It is just one of the quirks that takes place and comes with putting capital to work. Let's see if changes come.

I read recently that one large bank switched their mortgages to "mark to maturity".
Fortunately in 2008 I only had to mentally "mark to market" everyday just by looking at my portfolio value.
The dilemma in 2008 was, do I publish the results to my wife daily, or just wait for the rebound. :-)
Fortunately I did not have to publicly publish the results. 
Since I deal in credit, it did reverse pretty fast.