Question on "mark to market"

the righties have been pushing the meme that it was, of all things, regulation in the form of Sarbanes Oxley that led to the credit crisis. Of my little knowledge, I gather they are saying that investors should just just guess what the worth of their holdings are, instead of what they could sell them on the market for. In other words, lying. Anyone have any insight into this sneaky little tactic by the wingnuts to defend the indefensible, free market fundamentalism?

asset at what it could sell for at the present time in an open market. It created huge write downs but not because of the rules but because of the junk the banks had on their balance sheets.

and they are 30 year mortgages. u no that over the 30 years, those house prices are ultimately likely to increase. but the feds make you evaluate them in the short term--marking them to where the mkt is TODAY, not in the long term. so they can look like you're holdings are smaller thab you think they are worth.

explain what the alternative would be, and would it have made the situation better or worse? So, if the banks were able to mark the market to a future price, would they have suffered the same losses we are seeing today? Isn't that really arbitrary? If prices could go down, it almost sounds like the siutation could be made worse? Sounds to me like mark to market actually affords at least some consistency and transparency. Do I have all of this straight?

You bought a Picasso 2 years ago at an art auction and you paid $2 million for it. It's hung on your wall and now your tastes have changed to Chagal's. You take the Picasso to the auction house, but for the sake of this hypothetical, this auction is open to and attended by every single person on the planet that might be interested in this sort of item.

And you get zero bids.

Is that $2,000,000 painting really worth nothing?

What if a well known Picasso was recently found to be a fake after a recent auction and the reason there are no bids is because there is now zero confidence that Picasso's that show up at auctions are genuine?

The above example is an extreme. So modify the situation to say there is a rumor that someone has a fake Picasso, but that auction house is full of people who are still willing to buy yours and the information is out there and everyone is well aware that this painting sold for two million only two years ago.

Say the bids come in and stop at $1,000,000. Half what you paid. If this is your only way to sell this painting, it's value has just been declared by the most honest way known to man - an open outcry auction that clearly shows the price the market will bear - and your act of agreeing with that result is you marking to market that painting.

Bonds and other securities must be valued in this way or some related fashion so you know what you have. There is no other way to put a value on them.





The overwhelming number of debt securities out there do not trade on an exchange. They trade "Over-The-Counter"
This Wikipedia page does a good but brief job of explaining this significant difference.

This does not address the way all debt securities are traded, but it covers most of it.

It should be well remembered that one of the largest bond trading companies in the world was decimated on 9/11. Cantor Fitzgerald lost 2/3'rds of their employees (658 people) when the plane crashed into One World Trade Center. They have since rebuilt the company to its former strength.

It makes a thousand times more sense. Thanks for taking the time to do that. I'm getting better at it, but some of the econ stuff really requires some time and effort. Sometimes, someone on DU can really shed light on something that otherwise would have taken hours of time to really understand. Thanks again!