How do you assess the risk of financial contagion?

Marking to market in financial accounting is done as historic cost or market which ever is LOWER. But in financial institutions it is the higher value that gets marked. If it was done like in corporate financial accounting the whole crisis could have been avoided, then recapitalisation might have been necessary. Till the crisis sproted there was no recapitalisation requirement since they were marked higher. When they lost value through defaults recapitalisation requirement emerged for solvency. Moreover banks could strip a mortgage asset collaterlising it and sell bonds of larger denominations than what they lent due to this policy of HIGHER marking to market instead like corporate accounting where lower values are maintained on books.

Another area can be identifying the amount of toxic assets and checking out what damage is expected in the future ahead and probably government buying out those assets with instructions to never mark to market at higher market values. Government can sell these assets later on when the price moves up something like the speicialists in stock trading, buying stocks in both directions and selling in both dierctions whateve they bought making profit or from spreads.