No.
There should be no “mark-to-model,” period. If you want to price something, you put it out into the market.
The reason why the credit markets are blowing up is that the mark-to-model CDO’s hid the deteriorating value of sub-prime infected debt instruments from the market for far too long.
Suddenly when the funds holding the CDO’s were forced to put the CDO’s into the market, they found out just how far off their models were.
The root problem here is that the valuation model for CDO’s was created by the same banks selling the CDO’s. So if we wanted to keep mark-to-model valuations, then the models need to be created by some other bank not selling the instrument, which would remove the obvious conflict.
Your assessment of the SEC’s brains vs. the banker/fund brains is correct, which is why I believe that mark-to-model should be simply banned. Let the market do what the market is supposed to do: value assets in open outcry.
I know the regulatory side of things in more than a passing fashion, but from a lower level perspective. Nuts and bolts, when the higher ups get excited about a case they have access to the commissioners and their staffs, and lots of resources, to throw at a case. But before the excitement builds there are competent professionals, but no derivative “rocket scientists” doing the digging and putting the case together in the early stages. Lots gets missed. Meanwhile, I’ve known a former IBM researcher, Ivy League PhD in physics, who went to Wall Street to do the math for the firms regarding derivatives.