Mark to Market

At the center of the banking crisis is "mark to market" pricing.  The reason why everyone is having trouble pricing the troubled "bad" assets on the bank's books is that there are more than one way to price assets.  If you mark the assets to the price the market is willing to pay for them today you get a much smaller number than pricing the assets based on future cash flows.  The reason why banks have be writing down huge sums of money over the last few quarters is not only because their bad assets are worthless, it is because they are required to mark their assets to the price the market is willing to pay for them.  This action of marking assets every quarter was brought about because of Enron, and it is making the banks insolvent. visit here.

Paul Krugman's best article in weeks. here.