Mike at Rortybomb captures the essence of the mark-to-market/mark-to-model debate nicely:
At this point, I almost expected him to say “the problem is that all we can see is the shadow of the assets projected on a wall, not the real Form of a bond comprised of $500k loans to junkies. If only we could see the outside the limited cognition of our cave, see these mortgage-backed securities in the light of the actual Sun….”
Want to know how I know your markets are fucked? Because distinguished men of business and finance sound like hipsters trying to make their way through a seminar on epistemology.
If we’re going to be good little capitalists, then we have to accept the notion that any thing has no value beyond its market value. (Or, we might say something about a thing having no value beyond its use value and exchange value; since bonds and other securities have no use value qua electronic blips, their only value is tied to the market.) Anyone positing a value for some thing beyond what the market will bear is, quite by definition, espousing some theory of value other than the capitalist one.
Now, the pleas of financiers that their mortgage-backed securities are worth more than current prices suggest because the market is incorrectly valuing some set of future cash flows are a far cry from, say, espousing a labor theory of value. But their inability to toe the ideological line in the market/model debate is of a piece with the “privatize gains, socialize losses” ethos of our society. Honest readers of history already know that free markets are a fantasy: there is not and has never been a market economy that survived for long without massive state intervention. What recent years have demonstrated is that even the bankers don’t believe their myths, leaving only teabaggers and demagogues left to champion the shadows on the wall.