The Capital Marketsí Needs Will Be Served
Fair value accounting limits bubbles rather than creates them.
by Paul Miller/Journal of Accountancy
With regard to the relationship between financial accounting and the subprime-lending crisis, the needs of the capital markets will be served, one way or another.
Capital markets cannot be managed through accounting policy choices and political pressure on standard setters. Yes, recent events show that markets can be duped, but not for long and not very well, and with inevitable disastrous consequences.
With regard to the subprime-lending crisis, attempts to place blame on accounting standards are not valid. Rather, other factors created it, primarily actors in the complex intermediation chain, including:
In addition, housing markets collapsed, eliminating the backstop provided by collateral. Thus, claims that accounting standards fomented or worsened this crisis lack credibility.
This article has been excerpted from the Journal of Accountancy. Read the full article here.