Toxic Assets and the Modified Mark-to-Market Valuation Method
In Chapter 1, we reviewed some of the main factors that led to the great market meltdown in 2008. Among them was the utilization of the mark-to-market valuation method, instituted since 2001 by the Financial Accounting Standards Board (FASB). In this appendix, to help you appreciate this valuation method, we review three available valuation methods and compare and contrast them with each other.
Financial companies comprise approximately 10 percent of the S&P 500 Index, which is a broad market performance measure. However, it holds a critical role in igniting the capital markets’ healthy performance. To sustain dynamic growth, developed countries need to provide an efficient flow of credit from savers to borrowers. Accordingly, credit is the life’s blood of the economy and must be available to corporations and economic agents. Therefore, if banks and other financial institutions do not prosper, they cannot facilitate credit and leverage. Earnings and profits help banks capitalize on their assets and provide capital for new projects, expansions, and social and private commercial developments, which in turn creates more jobs and prosperity for communities and individuals. Consequently, nourishing the financial health of banks and the financial sector is a major step toward long-lasting prosperity. Market participants have realized the current pathetic and dismal state of major financial institutions and thus ...

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