December 21, 2009
"Did Fair-Value Accounting Contribute to the Financial Crisis?"
Posted by Gordon Smith

Remember all of that talk about how fair-value accounting was exacerbating the financial crisis? A new paper by Christian Laux and Christian Leuz examines that argument and concludes that it is "unlikely that fair-value accounting added to the severity of the 2008 financial crisis in a major way."

If you are attentive to qualifiers -- "unlikely" and "major" -- you can see that the argument is not a slam dunk, but the authors do a nice job of walking through the fair-value accounting rules and explaining the exceptions and safeguards that would have muted their effect. If you don't want to wade through the whole paper, you may prefer the blog post.

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