insolvency & forced them to unload assets at low price, which thencaused values to fall even further.Yet mark-to-market accounting continues to have its proponents, whoare equally adamant. Lisa Koonce ,an accounting professor wrote that
this is simply a case of blaming the messenger. Fair value accounting isnot the cause of the current crisis. The reasons for it are such baddecisions as granting su
bprime loans & writing credit default swaps…”
The investment advisory group of the Financial Accounting StandardsBoard (FASB) stressed that it is especially critical that fair valueinformation be available to capital providers & other users of financialstatements in periods of market turmoil accompanied by liquiditycrunches. This view suggests that banks should mark their bonds to thecurrent market price, so the investors would become certain & nothaving trouble to recapitalized these institutions.Which camp has the right answer?
Perhaps neither. We don’t want
banks to become insolvent only because of short-term declines in theprices of the mortgage-related securities. Nor do want to hide bank losses from investors & delay the clean-up of toxic assets as happened inJapan in the decades after 1990. We only want the some newmultidimensional approaches which regulate both bankers & investors tofinancial reporting.(Next article:
myths of the game
by mehul sangani )Mehul Sangani(MBA 3