Chicago Daily Observer

On Friday, the Financial Accounting Standards Board (FASB) voted to release a staff proposal that strongly suggests companies may use contractual cash flows to value an asset that does not have a liquid market. Although this is being described as a “clarification” rather than an outright change in mark-to-market accounting rules, it has the potential to curtail the financial crisis without spending another dime of taxpayer funds.

The story was first reported in the mid-afternoon on Friday. While the market did not react immediately, late in the trading session the Dow Jones Industrials Average surged 800 points. It faded in the last 25 minutes of trading as investors took cover going into the weekend. At the close, the Dow was still up about 400 points from the bottom, and it has continued to rally Monday morning.

While many accountants argue that mark-to-market accounting provides transparency, the markets know differently. Fair ... Read More...

inancial problems have not yet dragged down the economy, but it is also true that the economy is not the cause of financial-market problems. Most of the loans that have been going bad in recent months would have gone bad even if the economy had been growing twice as fast. So what is to blame for the “worst financial crisis since the Great Depression”?

The answer seems simple. Mark-to-market accounting rules have turned a large problem into a humongous one. A vast majority of mortgages, corporate bonds, and structured debts are still performing. But because the market is frozen, the prices of these assets have fallen below their true value. Firms that are otherwise solvent must price assets to fire-sale values. Not only does this make them ripe for forced liquidation, but it chases away capital and leads to a further decline in asset values.