U.S. credit crisis an accounting problem, says Mobius

By Walter Brandimarte

NEW YORK (Reuters) - The U.S. financial system's credit crisis is essentially an "accounting problem" caused by regulation requiring banks to mark down their mortgage assets to market prices, even though trading in the securities is so illiquid there are no reliable market prices, top fund manager Mark Mobius said in an interview.

The so-called "mark-to-market" approach, which has been strictly enforced by accountants trying to avoid the same kind of criticism they received during the internet bubble and crash of the late 1990s, has "created this crisis which is spreading around," Mobius told Reuters in a phone interview from South Africa.

"I know that sounds strange, but there is actually no reason why you have to mark to market all of these loans. To me, it's ridiculous," said the veteran fund manager, who runs Franklin Templeton's series of emerging markets funds.

Current accounting rules have forced banks worldwide to write down mortgage-related assets of more than $160 billion, according to conservative estimates, in the wake of rising defaults on U.S. subprime mortgages and falling house prices.

Bear Stearns, one of the banks most exposed to the subprime mortgage market's problems, faced billions of dollars of withdrawals by worried creditors and counter-parties last week, and was forced to sell itself in a fire-sale deal with JP Morgan Chase over the weekend, leaving investors wondering which bank could be the next to fall.

Analysts fear the credit crisis might spiral out of control because, when a bank revalues its mortgage-backed securities at fire-sale prices, that usually leads to further sales and even more write-downs.

"What's happening now is that as soon as you revalue one set of bonds, everybody else has to do the same thing because that becomes the benchmark," described Mobius. "So I think this is really a mania, it's an insane kind of mania that has gripped the U.S."

The 71-year-old manager, who joined Templeton in 1987 as president of the Templeton Emerging Markets Fund, believes the Fed is right to accept mortgage-backed securities as collateral from central bank loans, but he said that is not enough.