Originally Posted by wiphan

This is the problem. Let's use a real life example. You own your home and you are subject to Mark to market. You paid $300k for your house and it is worth $300k. Now you are subject to revaluing your home daily. If it goes down you have to pay the bank more $. Now your neighbor lost his job, and had to sell his house. Now the market is down a little and he has to sell his house quick, since he doesn't owe very much he sells his house at a discount for $200k. Now if you use mark to market your home is worth $200k now and you have to come up with $100k to pay the bank. Now is your home worth $200k? no, but since your neighbor sold his home for $200k your home is now worth that according to mark to market. Well you don't have the $ to pay the $100k so you have to sell your home. Your neighbor just sold for $200k so now you have to sell even though nothing changed on your end and most likely you will sell your home for $200k or less thus creating the same problem for the rest of your neighbors. Once one of you sells your home each neighbor has an issue. This is what is happening in the banking world. Say BOA sells a large portfolio of mortgages for a discount 20 cents on the dollar. Now Chase's assets are worth 20 cents on the dollar even if the asset and portfolio is performing fine. It has nothing to do with the performance of the asset. I hope that helps explain it.

There are plenty of good viable paying assets that have been devalued due to mark to market rules. It is not just the bad loans (ie-subprime, pay option arms, etc) that are being devalued. It is everything. The banks need to keep more assets in reserves even though the assets are paying fine and producing income. Many of the banks are still profitable. Unlike the auto makers who have a real profit problem, this is just an accounting issue that could be fixed....