The mark‐to‐market valuation and executive pay package regulations within the 2009 US (Bailout) Emergency Economic Stabilization Act

This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material. The paper shows that the effect of the Emergency Economic Stabilization Act (EESA) is ambiguous. It discusses the benefits and costs of mark-to-market valuation and design of executive pay package policies within the US 2009 EESA. It highlights how the mark-to-market valuation standard influenced financial institutions, explains why mark-to-market policy suspension proponents can support the EESA, and realizes how the Financial Accounting Standards Board (FASB) and Securities Exchange Commission (SEC) can count on the EESA while assessing the need and cost of the mark-to-market policy. Also, the paper discusses the promise of executive wage caps within the EESA. Moreover, it differentiates between executive pay packages pre-and post-EESA policies. Introduction The autumn of 2008 witnessed what was probably the most extensive and prolonged breakdown of the US credit mechanism that has occurred since the establishment of the banking system. The deadweight losses from bankruptcies, foreclosures and job losses are significant. the number of unemployed persons in the US increased by about 5 million, and the unemployment rate has risen by 3.3%. 1 The actions being taken are extraordinary; they aim to stabilize the economy, preserve home-ownership, protect taxpayers, provide no windfalls for certain executives, and strengthen oversight. However, these actions – stated in the Emergency Economic Stabilization Act (EESA) – entail a moral hazard and a potential recession-triggering signal. The moral hazard can be represented by bailing out firms that have miscalculated in the market. This attitude can shoulder taxpayers with costs that should be borne instead by those who made the mistakes. Any indication from government that it will save one group of investors encourages others to line up for help. The prospect of ultimate protection induces others to make riskier business decisions. The logic, in the case …