According to Investopedia.com, Mark-to-Market accounting “measures the fair value of accounts that can change over time, such as assets and liabilities. It records the price or value of a security, portfolio, or account to reflect its current market value, rather than its book value.” Mark to Market accounting was originally put into practice to prevent company’s liabilities from being hidden. FASB was worried that businesses were maintaining their bad assets on their books, rather than writing them down to their true value. The main advantage of Mark to Market accounting is that it shows assets at their correct, market price and gives shareholders a more accurate depiction of the company’s financial condition. Here’s where the controversy comes into play. A bank’s assets consist of mostly of loans and securities. The system of accounting used can determine the values of these securities, and therefore can greatly affect the bank’s assets and liabilities. As a result, owner’s equity and the income statement are also affected. As assets drop, so must the value of the company. Consequently, equity or the company’s stock price will go down. The central and underlying problem with Mark to Market accounting is that it lets the market establish the value of an asset. In an economic boom and normal times, MTM is practical. However, in an economic crisis, such as now, it is no longer realistic or functional. When an economy is fearful and loses confidence, prices for assets become way out of balance. In some cases such as now, you may not be able to get a realistic price of assets because there is no market for them. This is currently the case with Mortgage Backed Securities, in which there is no market and the value of these securities are impossible to give. These securities have unknown exposure and are seen as very volatile. Consequently, these securities become insignificant and their worth becomes $0. This is obviously not true, and the question of how we should determine a reasonable and accurate value for these assets still remains unanswered.   Works Cited

1. Mark-to-Market Accounting: What You Should Know (2008). The Motley Fool. Retrieved May 13, 2009 from http://www.fool.com/investing/dividends-income/2008/10/02/mark-to-market-accounting-what-you-should-know.aspx
2. Why Mark-To-Market Accounting Rules Must Die (2009). Forbes.com. Retrieved May 13, 2009 from http://www.forbes.com/2009/02/23/mark-to-market-opinions-columnists_recovery_stimulus.html