Mark to Market vs. Mark to Model

There's been a lot of talk recently about how "mark to market" accounting is "forcing" financial institutions to write-down assets at fire-sale prices. Mark to market accounting requires that firms value their assets in accordance with current market prices, even if that means pennies on the dollar. Since the beginning of this crisis, the market for mortgage backed securities and the like has literally dried up, forcing firms to take massive losses on these illiquid instruments. Some say that "mark to market" should be suspended for a given period of time and replaced by the so called "mark to model." Mark to model is a form of "accounting" that allows the firm to price their assets based on internal assumptions or models. If I remember correctly, these models that priced these mortgage backed securities over the last five years were using inputs like double-digit real estate growth in the form of a perpetuity. This is known as severe modeling error! In my opinion, until we find a better alternative to "mark to market," we should let the free market system adjust instead of interfering and creating yet another mess. Again, this is a very controversial topic so any comments are welcome.

By the way, I'll be out of town the next few days, but should be back in business by early next week. When six feet of snow falls in less than 36 hours you just can't pass it up!