To what extent is the subprime meltdown the result of an accounting technique?

In theory, mark to market accounting sounds neat because it potentially gives a more realistic take by assigning a value to the financial instrument based on the current market price. The problem is that there are times when the market price cannot be shown objectively. Examples included the collateralized debt oblogations that were based on subprime securities. In many of those cases, these securities did not have long trading history. In that case, it would turn mark to fantasy. Great exponents of this trick included Enron.

Mark to market accounting techniques had a key role in the credit crisis, writes Slate's Daniel Gross.

While some people are saying it's time to suspend mark to market and let things settle down, Gross says the hypocrisy is staggering.>

"The language is technical, but the arguments here are simple and really quite silly-especially coming from folks who value market indicators over all else. These folks are saying that when markets are volatile and irrationally pessimistic, it's just not fair to force people to act as if the market prices are real," Gross writes. "But you'll notice that they never made that argument back when markets were irrationally optimistic, as they were from 2003-2006. No hedge fund manager ever told a bank that it should lend him less money because the value of the collateral he was putting up was clearly a product of unwarranted optimism or that he shouldn't collect management fees based on the assets under management because their value was clearly inflated. Nobody ever complains about the market's ruthlessness and inefficiency when it's making them money."