On November 15, FASB 157 comes into effect, which will require that level 3 assets (a brief primer on level 3 assets here) be “marked to market” (priced by market value), or written down as losses.

Previously, they had been priced using complex, and likely inaccurate, models developed by the holders of these instruments.

So now, they have to price these assets according the price that they might fetch in a market which does not exist.

The author of this article, Harry Koza puts it more colloquially:

Right, like the assumption that house prices can only ever go up. Anyway, FASB says that starting Nov. 15, fair value at any given moment is the price you can sell the thing for, period. So now all the banks and dealers have to disclose how much of what’s on their books is crap that there’s no bid for, and write down the value to what it’s really worth, which, in some cases, may be bupkes. Needless to say, the previous valuations of those investments, using management’s presumptuous assumptions, were much closer to par than the new ones will be.

It’s 1929 on crack.