From a WSJ article:
Before tumbling into bankruptcy, Lehman Brothers Holdings Inc. proposed hiving off hard-hit commercial-mortgage assets so that the investment bank no longer would have to use battered market prices to value the holdings.
American International Group Inc. contended in August that the use of market values was forcing it to recognize greater losses than it would ultimately realize on derivatives insuring complex financial instruments backed by mortgages.
Now the demise of both firms is rekindling debate over whether so-called mark-to-market accounting has fanned the flames of the credit crisis. Regulators and Congress face growing pressure to decide if the market’s turmoil has gotten so bad that companies should be shielded from the mark-to-market rules, even if just temporarily.
I will be surprised if at least a suspension of mark to market is not included in the Mother of all Bailouts.
Questions about the use of market-value accounting have raged since the credit crisis began. During a congressional hearing last fall, Federal Reserve Chairman Ben Bernanke raised the possibility that the practice was helping to destabilize markets.
Finally, something Bernanke and I agree on.