What Is Fair Value Accounting and Why Are People Concerned about It?
About This Event

Generally Accepted Accounting Principles (GAAP) is an accounting system that relies primarily on cost to establish balance sheet values. This works well when hitched to a depreciation system that reduces the value of assets as they are used up or made obsolete. But how should companies account for financial assets like mortgages or mortgage-backed securities? They do not depreciate, but their value changes with interest rates and with the ability of borrowers such as homeowners to meet their loan obligations. Fair value accounting, which was introduced into GAAP in the early 1990s, seeks to bring the balance sheet values of financial assets closer to market values. That seems reasonable in general, but it introduces significant volatility into the financial results of banks, securities firms, and other financial intermediaries. When market values fall substantially, as they have recently, fair value accounting has forced the recognition of losses that some contend were more severe than warranted by economic reality. As S&P analysts wrote recently, “when we dissect the percentage of writedowns taken against various types of exposures, the magnitude . . . is greater than any reasonable estimate of ultimate losses.” Is fair value accounting being implemented in a way that creates unrealistic losses? Is it good or bad for the economy? Is there a more reasonable way to account for financial assets? This conference will address these and other questions.

Agenda
2:45 p.m.
Registration
3:00
Introduction:
Peter J. Wallison, AEI
3:15
Panelists:
Craig Gifford, Guaranty Financial Group, Inc.
Harvey L. Pitt, Kalorama Partners LLC
Vincent R. Reinhart, AEI
Mark Scoles, Grant Thornton LLP
Leslie Seidman, Financial Accounting Standards Board
Gerald I. White, Grace & White, Inc.
Moderator:
Peter J. Wallison, AEI
5:30
Adjournment
Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

image Recovering from tax time blues
image 10 welfare reform lessons
image Let HHS nominee Sylvia Burwell explain Obamacare lie
image Why bold ideas backfire in politics
AEI Participants

 

Vincent R.
Reinhart
  • Vincent Reinhart, a former director of the Federal Reserve Board's Division of Monetary Affairs, joined AEI in 2008 after working on domestic and international aspects of U.S. monetary policy at the Fed for more than two decades. He held a number of senior positions in the Divisions of Monetary Affairs and International Finance and served for the last six years of his Federal Reserve career as secretary and economist of the Federal Open Market Committee. Mr. Reinhart worked on topics as varied as economic bubbles and the conduct of monetary policy, auctions of U.S. Treasury securities, alternative strategies for monetary policy, and the efficient communication of monetary policy decisions. At AEI, he has continued his work on all of the above in addition to research on key economic variables before and after adverse global and country-specific shocks, policy mistakes leading to the 2007-09 financial meltdown, and the implementation and impact of quantitative easing.
  • Email: vincent.reinhart@aei.org

 

Peter J.
Wallison
AEI on Facebook