It would be one thing if we had reason to suppose that the valuations produced by available mark-to-model methodologies was meaningful for many of these financial instruments, or if there was some sort of effective mechanism - or even the near-term prospect of same - in place to ensure that an attempt was at least being made to make them as meaningful as possible.
Instead what we've got is regulatory churn for short-term political gain absent any such controls on its abuseand little public discussion of the cost in terms of inventor and central-bank confidence in already highly suspect valuations.
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Mark-to-market is not required by Sarbanes-Oxley, and there are existent mechanisms to deal with problem of "temporarily impaired" assets. FASB 157 allows non-level 1 classified of assets in a disorderly market and allows regulated capital valuations to be molded. If someone tries to tell you differently refer them to the 9/30/08 SEC/FASB statement on this question:
http://www.sec.gov/news/press/2008/2008-234.htm
Where Sarbanes-Oxley coms into this that banks - often on the advice of their auditors - elected to use market valuations because they felt if gave executives protection against accusations of having made material misstatements on valuation issues.
Well stated. Nobody is going to trust these new valuations, and relaxing by [temporarily] suspending the rule for all or only financial institutions is not a real fix for the overall problem. But it may help somewhat in preventing debt downgrades by rating services (Moody's, S&P, Fitch) and thus devastate and drive down the stocks of these institutions based on temporary unreal ($0) valuations of some of the illiquid assets on the books.
The real problem with FASB 157 (aka "mark-to-market" or "fair value") is that it simply doesn't do well and should not be blindly applied in certain circumstances, such as illiquidity in the market (which happened after Lehman and AIG collapse) and especially when combined with severe ongoing deflation of underlying assets. It simply creates the vacuum where the market for a whole class of assets or securities doesn't exist and, as such, the market value is temporarily unknown and has to be treated close to $0 on balance sheet.
It is essentially a downward "death spiral", which also has been preyed upon by short hedge funds, and it also immediately destroys the companies that sold CDS "insurance" on these banks.
So relaxing FAS 157 - while it cannot and does not fix the underlying problems, in and of itself - may provide time and allow for the market to unfreeze and find the real "fair value" of the assets to generate liquidity, at which point "mark-to-market" would become, as you said, meaningful. In other words, it's a technical fix to a specific technical problem, which, obviously, was not anticipated when rules were made by FASB... but it's not a panacea and not a solution for underlying problems.
My post dealt with Sarbanes-Oxley (SOX), and particularly section 404, independently from these banking issues. Rather, I brought it up as yet another populist legislation that claims to fix the "loopholes" or the problems, while in reality only introducing more problems and doing more harm than it was ever supposed or intended to fix.
But you are correct in noticing that it may have forced or influenced managements to provide very conservative valuations of illiquid assets on their balance sheets. That, in turn, may have exacerbated the atmosphere of panic.