“Between the idea/And the reality/Between the motion/And the act/Falls the Shadow.” T.S. Eliot should be required reading for those grappling with the latest philosophical debate on Wall Street. Between the mark and the price (of a mortgage-backed security) falls, well, something quite scary.

The problem of how to value securities when liquidity has evaporated was highlighted again recently. Hedge fund Ellington Management told investors there was no way of determining net asset values in two of its funds while remaining fair to all its investors – when some wanted to get out. Indeed, the fall from grace for the securities that Ellington singles out has been spectacular. Once offering very high returns – even before leverage – the unrated or equity-like portions of mortgage-backed securitisations are being shunned.