The Wall Street Journal writes in its editorial endorsement of the bailout:
Another misconception is that the credit problem will vanish if only Treasury suspends “mark-to-market” accounting — as if those bad assets wouldn’t still exist. The banks themselves would know they still have this bad paper and aren’t likely to engage in much new lending. Investors also don’t trust the bank marks now; imagine what they’ll think if the U.S. declares that cooking the books is official policy. Mark-to-market has surely contributed to this mess and needs to be revisited. But to toss it aside wholesale now would risk turning banks into the zombies of Japan’s lost decade.
I don’t believe that “toss[ing mark-to-market rules] aside wholesale,” or even suspending them altogether, is a good idea. But I don’t think the Journal’s criticism applies to First Trust’s proposal to suspend mark-to-market accounting for “structured (Tier 3) assets issued between December 2003 and August 2007.” As for “cooking the books,” commercial banks are already able to use hold-to-maturity pricing. Isn’t that a large part of the reason investment banks have been converting themselves into commercial banks?