>>>For items that trade only once or twice a year, immediate mark-to-market is ridiculous procedure for evalation, guaranteed to mislead, and unfairly destructive of capital to boot.
You make great recommendations particularly on the averaging), but doesn’t it happen that the markets are liquid in good times and illiquid in bad times. Mark to Mark appears to have been invented to report PROFITS in good markets... not LOSSES in down markets.
If there is no underlying tangible asset,then perhaps financial institutions shouldn’t be creating this fictitious transaction— particularly those that rely on the federal government for socializing losses.
Gosh, what did we do in the 1950s in this situation? /s/
This debacle is causing a devastating misallocation of taxpayer funds.
I'm a futures and options trader; MTM is like breathing in this industry, just a very reasonable way to know where one stands at the end of each day's trading. And, MTM is agnostic about profits or losses -- one's positions are worth a distinct and calculable amount X at any given time, whether they're losing positions or profitable ones.
The problem (well, ONE problem at least) has occurred because MTM is simply not a magic valuation bullet for all investing/trading activities, and is not legitimately applicable in a wide variety of instances where it is now being (mis)used.
If there is no underlying tangible asset (to use your condition), then mark-to-market is simply ridiculous on its face. Whatever lunk thought up the notion of trying to mark 'phantom' assets to market deserves a thorazine cocktail with a valium chaser.
We didn't see this situation in the '50s (or 60s, or 70s mostly) because methods of derivatives pricing weren't sufficiently advanced to allow for the creation of CDOs, SIVs, CRLs and the like.