I see that some bankers under pressure are pointing their finger at the newly introduced "mark-to-market" US accounting rule while muttering "that's the culprit!"
On the surface a sensible rule one would think, but some are sceptical as the markets are never quite effective. And now is such a time.
The new instruments we had so much fun with a year ago, the ones with long and trust-inducing names, are currently rather toxic so the market value is often zero while the banks think they're worth something. Thus no buyers, and no sellers. And of course valuations set by the non-buyers resulting in huge paper losses that might be virtual.
I think it's all kind-of-funny. If you create a financial instrument named "High grade structured credit enhanced leverage fund" and cannot really explain what it is, how can you expect a market to understand and price it? If the market is in an ebullient mood and goes "hey, gimme another vodka martini, I need the spirit to go with the purchase!", then of course anything goes. But on sombre days of sparkling water only, well...
Maybe the FAS 157 will remind the financial alchemists and product designers that their products have to be understood by a market even when market sentiment is closer to panic mode. Hey, the product even has to be understood by themselves! That would not be so bad, now would it?
Like products where I actually could calculate my return even if I did not sell it.
I am sure you've seen this many times before, one of my favourites and quite FAS 157 relevant: