Context for the SEC Study on Market-To-Market Accounting

The SEC's study gives some background concerning what lead to the study:

Over the last 12 to 18 months, the world economy has experienced economic conditions that have affected financial and non-financial institutions. What at one time some viewed as an isolated crisis in the subprime mortgage sector has spread to the global economy as a whole. Factors that have been cited as causing or contributing to the current economic crisis include, among others, low interest rates, rapid housing appreciation, alternative mortgage products, relaxed underwriting standards, increased leverage, innovative new investments that were institutions are experiencing the brunt of increasing mortgage defaults, housing foreclosures, bank failures, and tighter credit, other industries are experiencing losses, liquidity issues, rapid decreases in market capitalization, layoffs, and lower consumer confidence – all underscored by the National Bureau of Economic Research’s recent announcement that the U.S. has been in a recession since December 2007, which is expected to “likely be the longest, and possibly one of the deepest, since World War II.”
 
While analysis of the causes of this crisis is still underway, some believe that fair value accounting standards have contributed to or exacerbated this crisis, arguing that use of fair value accounting, particularly when markets are illiquid, has resulted in the valuing of assets well below their “true economic value.” Opponents of fair value accounting also argue that these write-downs have caused a downward spiral, as they have triggered margin and regulatory capital calls, “have forced rapid asset liquidation, exacerbating the loss of value, diminished counterparty confidence, and constrained liquidity.” Proponents counter that fair value accounting provides useful information to investors and its suspension would increase market uncertainty and decrease transparency. It is in this context that the Staff has performed this study of mark-to-market accounting to fulfill the Congressional mandate.