The mark to market rule makes no sense for mortgages when the mortgages are being paid. If you have a working asset, you have a working asset. Had this rule not been enforced in this manner, AIG would never have needed on dime of tax dollars.
The only time a mortgage asset should change in value for banking purposes is when it is sold.
You're wrong. AIG FP engaged in fraudulent practices by selling CDS insurance without having the means to pay out any claims.