For firms and economies affected by “mark to market,” pain now in the form of bankruptcy reorganization or liquidation is better than letting impaired assets subvert corporate balance sheets. Firms that want to avoid the effects of “mark to market” need to keep their balance sheets stuffed with cash and cash equivalents — even though that reduces immediate profit taking.
MTM is designed to give an accurate picture of the valuation of assets that trade freely, not assets that trade perhaps once a year or so.
The solution to firms' keeping (and misvaluing) shoddy assets on the books is to apply a valuation standard that is appropriate to the industry. Most of the S&L debacle of the 1980s was fueled by simple corruption: a parcel of land worth, say, $20,000, was revalued arbitrarily, with a wink and a nudge, to $200,000, and the new (cough) 'valuation' was pushed into the fractional banking pipeline, with the obvious result.
Nor can ''keeping the books stuffed with cash and cash-equivalents'' really solve this problem in many industries. Numerous industries -- building, for example -- perforce deal in physical non-cash assets. Yet there must be, for these industries as for any other, mine included, some valuation method that reflects the real world.
In these cases, mark-to-market isn't it, at all. Many times, for many different physical assets, there is no immediate market, no bidder(s), and the mark -- if one goes literally, as the goobermint regulators do when it takes their fancy -- is zero.
Which is complete rubbish, certainly, but that's what we've come to.