The recent U.S. housing bubble was correlated with lax underwriting standards, flawed housing polices, and Wall Street innovation. At the peak of the housing bubble, the Financial Accounting Standards Board issued standard 157, which provided guidance on fair value accounting. Once the housing market deflated, the standard led many to believe that it was the sole reason asset values collapsed, creating a liquidity crunch and prolonging the financial recession. This paper investigates the causes of the housing bubble and Financial Accounting Standard’s relevance in the aftermath. It finds that fair value accounting simply exposed the poor underwriting standards, bad public policy, and Wall Street’s gross underestimation of risk.
Major Themes in Economics
©2017 by Major Themes in Economics
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"The 2008 Financial Recession and Fair Value Accounting,"
Major Themes in Economics, 19, 77-98.
Available at: https://scholarworks.uni.edu/mtie/vol19/iss1/7