Holman Jenkins Jr. makes an important distinction:
Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It’s not so fine for regulatory purposes. It doesn’t just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform.
What happens next is exactly what we’ve seen: Their share prices collapse; government feels obliged to inject taxpayer capital into banks simply to achieve an accounting effect, so banks can meet capital adequacy rules set by, um, government.
The arguments I’ve read against adjusting mark-to-market rules have to do with disclosure. But that’s not an objection to adjusting them for regulatory-capital purposes.