Financial Crisis Part II: Should derivatives be marked to market?

So this is a continuation from the other post "Financial Crisis 2008".

What I don't get is "mark-to-market". Is it the accounting standard for derivatives? Can u valuate it by another way? I dunno, I just think it's dodgy. Mark to market is damn dangerous. I mean, value is all perception rite? All's good when the markets are well-oiled - enough buyers and sellers....valuations are reasonable. Actually, I hv to correct that. Valuations are too high in the recent 1 - 2 years.

My question is: when the mkt is irrational, how can valuation be rational? But right now, everyone's doing just that! Markin prices to irrationality and panic, not value.

Scenario
Okay, to put it in layman's term. You have a business selling tables. Note that it's NOT perishable. Last year, you sold tables at $50 a piece, with the cost price at $20. But suddenly, no one can give me a price on my tables. Because the wood that goes to making the table, is in some kind of a mess (housing issue). There's some problems with the farmers and some weird-ass insects ate the wood. BUT, it's a solvable problem. Some scientists are working on insecticides that will kill the insects. But because I need to sell tables to survive, I started panicking because no one wants to buy my tables. So, I valuate my tables at zero. Like...HUH!?!?

So back to reality, people still need houses. Life still goes on. Prices will drop back down to a level where people will start buying again and then, the derivative instruments will hv something to price on, right? But nooooo, the banks MUST...MUST price their derivative to something. Even if it's zero. Those derivatives are not expired biscuits rite? As long as housing is a necessity, at some point, value will reach a point where there will be demand.

So to summarize, I do not agree that derivatives should be marked to market. Meanwhile, solve the cashflow problem first - govt should pump in money to bail out some of the very institutions that make the world go round (bring back the demand for housing)...and solve the money supply/economic policies later.