hurricane of recent months, it is insanity. Imagine if you had to value your house, in a volatile housing market. As the owner you have a long horizon. You don't care what it's worth on any particular day because you're not selling it for a long time. But say you did have to mark your house to market every day and your mortgage lender demanded that your mortgage never exceeded 80 per cent of the home's value. On bad days, you might have to find thousands of pounds to maintain the debt-to-equity ratio or risk losing the property. This is essentially what has happened in the financial markets.

Banks hold assets - notably mortgage loans and their derivatives - which in the long-term may hold their value. But in the short-term the assets are being pounded and, because of the mark to market rule, the owners must come up with cash to satisfy their creditors. It is exacerbated by the fact that many of the assets in question are more complicated to value than houses. Sam Zell, one of America's smartest investors, has called the current crisis a "mark crisis" not a "cash crisis" and that once the panic subsides, so will the

financial problems.

Part of Spitzer's tragedy is that shortly before he was brought down he wrote a piece in the Washington Post describing how the Bush administration had facilitated the mortgage bust. The article appeared on Valentine's Day, the morning after Spitzer spent the night in Washington with a hooker.

Spitzer wrote that, in 2003, the Bush administration used an obscure federal law to pre-empt all state predatory lending laws and prevent states from enforcing consumer protection laws against national banks. What ensued was the untrammeled growth in subprime mortgages.

Spitzer wrote: "The federal government's actions were so egregious and so unprecedented that all 50 state attorney generals, and all 50 state banking superintendents, actively fought the new rules." The Bush administration had been a "willing accomplice to the lenders who went to any lengths in their quest for profits." But then, despite Spitzer's protestations, public officials were complicit too - and failed to stop what came next.