Holman Jenkins explains:
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.
But wait! I thought that the problem was all of the (non-existent) “deregulation” and “tax cuts” of the Bush years!
It would help if we could get rid of, or at least reform Sarbanes-Oxley, too, but little hope of that with this gang in charge.
[Update mid afternoon]
Stop favoring the short sellers.
[Update a while later]
Michael Barone: “Ad hoc Fed, Treasury Actions Caused Crisis, Not Deregulation And Tax Cuts.”
Well, duhhh. But reality didn’t fit the Messiah’s message.