On Mark-to-Market

I've actually changed my mind somewhat on mark-to-market (MTM) accounting during the financial crisis. At first I was strongly against relaxing MTM—the banks' complaints about MTM sounded way too much like the bogus complaints I had grown accustomed to hearing from banks over the past 15 years. But I spent a good deal of time either on or right off a few trading floors in the manic weeks after Lehman's failure, and it's safe to say that the intrinsic value of securities was the furthest thing from most traders' minds. (Liquidity and getting net flat to the market were the only things traders seemed to care about.) To the extent that banks are still marking assets at prices set in the immediate aftermath of Lehman's failure, MTM accounting is a legitimate problem.

Even in normal times, though, MTM accounting has never lived up to its billing. It's the most accurate valuation method we have, but that doesn't make it accurate. Ultimately, I share Kevin Drum's general ambivalence toward MTM accounting.

It's just hard to get worked up about moving from one inaccurate and unreliable valuation method to a slightly less accurate and slightly less reliable valuation method.