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.
Just following up a bit on this discussion, yesterday the rest of the world told the US and specifically FASB to take a hike - the IASB is just not going to accept political manipulation of valuation mechanisms as a substitute for fundamental rationalization of valuation methodology.
www.ft.com/cms/s/0/cc428a96-1fe4-11de-a1df-00144feabdc0.html
This is a huge change and probably one of many to come in the next few months; 18 months ago the American regulatory approach was in many ways the default template for the direction of evolving regulatory efforts and accounting standards, a year and half later it’s regarded as kind of a sick comedy when it is not perceived as an outright menace to international financial stability. We are never again going to have that degree of influence, but IMO it’s just insane engage in this sort of attempt to prop up balance sheets polluted with un-valuable assets and dilute our remaining influence in a world where we are dependent on a well regarded dollar and the availability of foreign investment to keep our economy functioning.
Meanwhile, I feel we are falling further and further behind the curve on dealing with valuation issues at a fundamental level- just stumbling along in the dark hoping to the light will come back on before we pitch headlong down the basement stairs - and the possibility of the US economy in a wheelchair a decade or more is a pretty scary prospect.
IMO SOX has become a whipping boy for complaints that are really about fundamental misbehavior on the part of both US and international finance, and a straw man as regards the arguments related to valuation methods. Go back to the FED guidance at the link in my previous post - there was already generous leeway to attempt realistic evaluation of asset value in disorderly markets, the failure to do so is just one more example of the widespread incompetence and wishful thinking so evident in the run up to her current problems.