It seems that because of Mark to Market, some of the bail out money given to banks has only helped re-balance their out of balance ratios. They still can't make new loans because that would cause their ratios to move out of balance again. The ratios I am speaking of are the deposits to loans ratios every bank is required to maintain. Those ratios are for banks like the old 28/36 ratios were in the old days for buying real estate. Less than 28/36 meant you were a buyer. 29/37 meant you were out of balance.
Simply put, "Mark To Market" is an accounting method that became law. It ended up affecting banks in ways that had not been carefully thought through. "Mark to Market" is a value accounting of assets based on the Market value at a given time. It does not allow for a cash flow value, or any other type of valuation. It is only a measure of value based on a point in time. So the problem with that is...?
It seems that the intent of the law wasto make everyone account for value the same way. What it didn't foresee was that when a big move happened either way, all values were affected. When some went up, they all went up. When some went down they all went down. If this was done in real estate, all the values on one street would be the value of the last sale on the street. If someone was willing to pay more than the last sale, all the values would be changed upward. If someone had to sell and sold below the last sale price, every the price would go down. There would be no consideration for location, condition, style, gross rents, etc..
The problem with that is, the point in time is not necessarily a correct measure, but the law does not allow for alternatives. When values of some assets of began to fall, all were affected. This made every company revalue their assets, even if their own assets were stronger than those causing the change. All companies lost value, even if their portfolio was solid.
Why did this law come into being? Because before it existed, some accountants were playing fast and loose with asset values in companies like Enron. So lawmakers were trying to reign in the accountants and investments businesses to close those fast and loose loopholes.
The way I understand it is, Company B has B grade assets. Company A has A grade assets. B company, that held a more risky asset package, had to sell at a fire sale prices because some of their assets started to default. According to law, Company A had to reduce the value of their assets correspondingly, because of B company's fire sale. The accounting laws made all values directly dependent on each other, rather than dependent on the individual make up of the assets relative to normal valuation methods of the past like cash flow, condition, location, etc..
Banks had to start "Mark To Market" their loan portfolios. As some loan groups started to fall, the Mark to Market affects caused the ratios of otherwise solvent banks to be outside of approved levels, even when their assets were stronger. That made stocks fall, which caused more distress, and then another Mark to Market, and more distress...
So when then the govt handed out money to increase some banks' ratios, those funds weren't lendable. If the bank made loans with those new funds, their ratios get out of whack again. So maybe the Mark To Market law/rule/procedure needs to get fixed. But, we all know how fast things move in the law making arena. It may be a way to free up some lenders.