Mark-to-market: Be careful what you wish for

How will the rules of credit markets change after the current US subprime mortgage mess? According to Anthony Bolton, «the prime brokers won’t allow valuations based on models. They will require valuations based on the market and that will be a mechanism leading to more reality.» The distinguished UK fund manager, quoted in the Financial Times, is right to worry, but his cure could be worse than the disease. Bolton and others are troubled by the «mark-to-model» techniques - based on sophisticat...