Enormous losses could have been avoidedif the SEC and the FASB had recognized that mark-to-market accounting should not be used when there is no active market.

Under the Dodd-Frank financial-reform law, large nonbank firms may be declared systemically important because their failure will cause a systemic breakdown. In effect, this amounts to a government statement that these firms are too big to fail.

At this AEI book forum, Jeffrey Friedman will present his book’s arguments, followed by comments from AEI’s Peter Wallison and Alex Pollock and a general discussion.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default - those that were held or guaranteed by Fannie and Freddie, and those that had been securitized by Wall Street. This drove down housing prices and threw Fannie and Freddie into insolvency. 

Here we go again.  A series of uncoordinated government policies are once more setting up the U.S. banking system for major losses and possibly another financial crisis.  

The underlying idea—that financial institutions are "interconnected" and the failure of one will drag down others - is not implausible. But like so much else that underlies the Dodd-Frank Act, it was accepted as true—and acted upon—without much evidence, or even much thought.

Since the 1930s, accountants and bank regulators have recognized the inherent weaknesses of mark-to-market accounting.

"Fair Value" accounting is not a fact. It is a theory that has had enormously damaging real world results.