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Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson, Richard Epstein
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson, Richard Epstein
Todd Henderson
This paper examines the relative strength of two imperfect accounting rules: historical cost and mark to market. The manifest inaccuracy of historical cost is well known, and, paradoxically one source of its hidden strength. Because private parties know of its evident weaknesses they look elsewhere for information. In contrast, mark to market for hard-to-value assets has many hidden weaknesses. In this paper we show how it creates asset bubbles and exacerbate their negative collateral consequences once they burst. It does the former by allowing banks to adopt generous valuations in up-markets that increase their lending capacity. It does the latter …
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson, Richard Epstein
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson, Richard Epstein
Todd Henderson
This paper examines the relative strength of two imperfect accounting rules: historical cost and mark to market. The manifest inaccuracy of historical cost is well known, and, paradoxically one source of its hidden strength. Because private parties know of its evident weaknesses they look elsewhere for information. In contrast, mark to market for hard-to-value assets has many hidden weaknesses. In this paper we show how it creates asset bubbles and exacerbate their negative collateral consequences once they burst. It does the former by allowing banks to adopt generous valuations in up-markets that increase their lending capacity. It does the latter …
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson
Todd Henderson
This paper examines the relative strength of two imperfect accounting rules: historical cost and mark to market. The manifest inaccuracy of historical cost is well known, and, paradoxically one source of its hidden strength. Because private parties know of its evident weaknesses they look elsewhere for information. In contrast, mark to market for hard-to-value assets has many hidden weaknesses. In this paper we show how it creates asset bubbles and exacerbate their negative collateral consequences once they burst. It does the former by allowing banks to adopt generous valuations in up-markets that increase their lending capacity. It does the latter …
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson
Do Accounting Rules Matter? The Dangerous Allure Of Mark To Market, Todd Henderson
Todd Henderson
This paper examines the relative strength of two imperfect accounting rules: historical cost and mark to market. The manifest inaccuracy of historical cost is well known, and, paradoxically one source of its hidden strength. Because private parties know of its evident weaknesses they look elsewhere for information. In contrast, mark to market for hard-to-value assets has many hidden weaknesses. In this paper we show how it creates asset bubbles and exacerbate their negative collateral consequences once they burst. It does the former by allowing banks to adopt generous valuations in up-markets that increase their lending capacity. It does the latter …