Mark to Market Accounting Rules Being Relaxed?

Mark to Market is an accounting methodology of designating and assigning a value to a security or a position held in a financial instrument. It is based on the current market price for that instrument or any similar instrument.

Lets take a Crude Oil Futures Contract set to expire in 1 year from today. You will have to either buy the contract or sell it at say 50 bucks. The final value of this contract is not known until the contract expires, so if it is marked to market, for accounting purposes it is assigned a value for what it is worth today on the open market.

Futures contracts are market to market every day, so any derivative contract that trades on a futures exchange is regulated by these rules.

OTC derivatives where most or all of the CDO's/CDS/Interest Rate Swaps trade/executed are not regulated and therefore are difficult to mark properly.

The problem with all of the toxic mortgage debt out there is that:

1- The bid/ask spreads are very wide, example = bid 35 ask 60. What is the value of this security? Is it 35 or 60? somewhere in between? Don't know.

2- The general illiquidity in the markets. The last sale is generally being set as the mark to market. Is this Fair? (Life is not fair!) It is what it is, get used to it.

3- Not too many dealers willing to make a market in toxic debt.

4- No one wants to take a position in a security that falls in the above 3 classifications.

5-Most mortgage/derivative positions on Bank and Insurance Company balance sheets are being "marked to model" (Their own internal model on security pricing) instead of marked to market. So the values on their balance sheet are not matching up with what they are actually worth, causing general pain and anxiety. This is why TARP has failed.

The market is rallying today as there are rumors or talk that the mark-to-market accounting rules may be relaxed under the bank bailout plan that is to be announced next week. Don't bet on it.

This is just another failed attempt not to fix the real issue.

I'm not sure that changing the accounting rules for hard to value assets does anything to make them more valuable, But I guess having better looking (Fake) balance sheets make people more comfortable in owning garbage.

These are the rules, we play by the rules in good times, in bad times, we want to change the rules, because they don't work for us anymore? I am going to go home and tell my wife that I want to sleep with other women, because the old rules (Marriage Vows) don't work for me anymore. Guessing she wont fall for that one.