The Simple Accountant

Nixing 'Mark to Market' Won't Solve the Problem

On a trading securities basis, mark to market may correctly value these assets under normal market conditions. There is a good argument that the present market conditions are quite extraordinary, and the assets are not being correctly valued by the most recent market transactions.

On a hold to maturity basis (see John Mauldin's analysis, for example), then there is a compelling case to be made that the assets are materially undervalued. Rescinding FAS 157 might make some institutions no longer technically insolvent, and this by itself could do a great deal to resolve some of the counterparty risk in short term lending that has devastated the credit markets.

Perhaps more importantly, rescinding FAS 157 would cost the US taxpayer quite a bit less than $700B.