Mark-to-market or Fair Value Accounting - which is better

Franklin Allen and Elena Carletti:
"In times of stress asset prices in some markets may reflect the amount of liquidity available in the market rather than the future earning power of the asset. Mark-to-market accounting is not a desirable way to assess the solvency of a financial institution in such circumstances."

[Why modify the rules for mark-to-market accounting at all? The answer seems to be that fair value accounting can be helpful when the market is viewed as being incapable of pricing things properly. At times of stress the market may be unable to value assets at their non-liquidation prices. It is an extremely emotive topic for those in the accountancy profession and there is conflict between the rules of the US Financial Accounting Standards Board (FASB) and the London-based International Accounting Standards Board (IASB). This begs the question -- do you rely on the price setting mechanism of the market or on the accountant's pen?]

Richard Berg --
"You need both. In a period of stress the two can be different. When I write down 1 dollar it should not have to be 40 dollars".

[He is saying that market value does not always equal economic value.... can it be true?]

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