Another take on FAS 157 and mayhem in the financial markets

BVWireIssue #73-5
October 29, 2008

Not surprisingly, last week’s hearings by The Committee on Oversight and Government Reform, entitled “The Financial Crisis and the Role of Federal Regulators,” concluded that no one single factor lead to the current financial crisis. However, those who believe that the mark to market accounting is at least partially at fault for the meltdown will find the comments offered by Representative Stephen Lynch, (D-MA) of interest. Lynch noted that there is but one way to describe the current problem: valuation risk and the inability to market participants to value products.

According to Lynch, “accurate information for the markets is really its life’s blood. If we don’t have that, we will never gain back the trust that we need in these markets.” He offered the example of Bear Stearns: “We had a financial report by Bear Stearns on the way down, just as they were about to be forced into a sale. In their report they said…we currently have $19 billion in complex derivatives on our books, the value of which is not readily observable…The instruments they had are just too complex, and the market had basically gone away for those instruments.” You can take a look a preliminary transcript of the hearings or listen to Lynch’s comments online.

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