If so-called fair value accounting had been in place then, just about every large bank would have collapsed.
The SEC had just adopted an obscure accounting regulation known as mark to market in 2006 (also known as fair value accounting).
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Moreover, accounting experts whose opinions I know and trust have suggested that the next wave of accounting inquiries may involve fair value accounting for assets and liabilities.
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Dr. ED KETZ (Smeal College of Business, Penn State): Much of the criticism against fair value accounting has been a smoke screen so that we don't hold bankers responsible for the mistakes they make.
But I do believe that some of the proposals which said, "Well, let's just suspend fair value accounting completely, " would have done more harm to the marketplace because it would have created even greater uncertainty as to the values that we're showing.
Even with Fannie and Freddie inflating the bubble and the Fed and the rest of the Bush Administration weakening the dollar, the crisis never would have become so unprecedentedly destructive but for a seemingly arcane accounting principle called mark-to-market, or fair value, accounting.
France's biggest banks say that fair-value accounting would threaten the stability of entire banking systems.
Gradually introduced and carefully explained, fair-value accounting should make for a more transparent and sound financial system.
We're in a market-based economy, where we're looking at fair-value accounting and marking instruments, to the markets.
Moreover, fair-value accounting appears to play a part in the upswing of a cycle as well as in the downswing.
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The most immediate is the mark-to-market, or so-called fair-value accounting, rules that regulators have been enforcing since the early 1990s.
Based on fair-value accounting rules, Goldman forced lower fire-sale marks on the industry which put some financial institutions out of business almost overnight.
Critics say the practice, also known as fair-value accounting, overstates losses.
Mr Isaac reckons that many of the measures that were introduced to instil discipline notably fair-value accounting, which forces banks to mark assets to the prevailing market price actually exacerbated the latest crisis.
Fair-value accounting is an absurdity for financial institutions.
Testifying before Congress last week, FASB chairman Robert Herz noted the virtues of such "fair value" accounting, which allow investors to evaluate the worth of a company and its assets without relying solely on the company's estimates.
For instance, the recent guideline on fair-value accounting, which decrees that companies must show equity holdings at their market value, also contains a provision that allows them to avoid writing down shares if they think that they will soon recover in value.
Other government policies that have distorted financial markets, thereby undermining the EMH, include shielding credit-rating agencies from lawsuits, government-sanctioned fair-value accounting rules, enforcing credit-default swaps where there is no insurable interest, mispriced deposit insurance, government-sponsored enterprises, and the over-promotion of home ownership.
Just as important, the Administration must deal decisively with the insanity of mark-to-market, or so-called fair value, accounting that has forced institutions under severe pressure from regulators and accountants to maniacally mark down to absurdly low levels the value of unmarketable securities and assets, thus destroying entities that have positive cash flows.
The Bank of England points out that, in Denmark, which brought in an accounting system akin to fair value some years ago, one result has been that the volatility of banks' capital ratios has risen sharply.
Congress is threatening to pass a bill creating a new Federal Accounting Oversight Board if FASB does not provide a change in fair value application by early April.
Related to the entire discussion is the effect of the issuance of Financial Accounting Standards Board (FASB) Statement No. 157 "Fair Value Measurements, " which became effective for entities with fiscal years beginning after November 15, 2007.
Wall Street has been moving billions of assets into a relatively new accounting category called "level 3, " a designation that the fair value of those assets, including subprime mortgages and derivatives, couldn't be determined because there was no observable market for them.
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