From Mark-To-Market To Fair Value

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The debate over mark-to-market accounting rages on.
The accounting standard known as FAS157 has been criticized by some bankers, notably Blackstone Group chief Steve Schwarzman, for needlessly causing big write-downs and encouraging financial panic. It's defenders include Goldman Sachs, which pointedly left the Institute for International Finance in June, a banking lobby group, over the IIF's anti-mark-to-market stance. Last week Treasury Secretary Hank Paulson defended mark-to-market during a talk he gave at the New York Public Library (which, ironically, is now officially called The Stephen A. Schwarzman Library.)
"I believe in fair value accounting," Paulson said.
Over at the Deal, Robert Teitelman cries foul, accusing Paulson of restating the debate in question-begging terms.

Now "fair-value accounting" has been around for awhile, but increasingly its patrons are using it to nudge aside the far clearer and more precise term "mark-to-market." "Fair value" contains a kind of moral imperative. Mark-to-market lays its weary head on the markets. Fair value, is, of course, by definition, fair. Who can argue with that?

Paulson and the triumph of fair-value accounting