The key here is to suspend mark-to-market acctg and reinstitute the uptick rule on short sales. Since there is no market for these CMOs, the accountants are making them write their value down to something close to zero. This causes huge writedowns that destroy the equity base of the holder of the CMOs. When they go out to the market to raise new equity, short sellers, no longer being inhibited by the uptick rule, drive the stock price down to the point that the enterprise is no longer valued on fundamentals, but panic. Merrill Lynch is a classic example of this.
One thing that is certain is that the subprime mortgages all have a home standing behind each one, meaning that valuing them at zero as FASB is forcing them to do is silly as well as seizing up the credit markets. My guess is that if you loosened or suspended market to market accounting on CMOs that would give each financial institution time to work out their problems.
