Marking to market, to model or to matrix?

10. Mark-to-market

As the super-senior bombshell and the travails of the monoline insurers have so graphically illustrated, perhaps the biggest shock arising from the subprime crisis was the recognition, previously unimaginable to many, that credit risk and liquidity risk are two very different things. The erroneous assumption that they were interchangeable terms, or at least closely related, was blown away in the summer of 2007, when liquidity in the highest-rated instruments evaporated with astonishing speed