The SEC loses touch with reality

Naked Capitalism points out a scary new letter from the SEC to CEOs regarding valuations under FAS 157. The NY Times has a good summary: If Market Prices Are Too Low, Ignore Them. The offending part of the guidance is:

Fair value assumes the exchange of assets or liabilities in orderly transactions. Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale.

My contempt for this is boundless. The point about mark to market is that you estimate the price of a current transaction. If there are more buyers than sellers, then prices will be falling. Whether some of those sellers are forced is irrelevant. If you had to sell today, you would be joining them, so the price they are getting is the best pricing source for a current transaction. End of.