The CDS book must be marked to market, but with a frozen market, AIG's accountants are employing strict fair value accounting and making AIG mark the values down severely.
Just as important, the Administration must deal decisively with the insanity of mark-to-market, or so-called fair value, accounting that has forced institutions under severe pressure from regulators and accountants to maniacally mark down to absurdly low levels the value of unmarketable securities and assets, thus destroying entities that have positive cash flows.
They had feared a shift to fair value accounting in general and especially now, after big investment losses in 2008.
The S.E.C.'s study of the practice, also known as fair value accounting, was mandated by Congress as part of the $700 billion financial bailout package passed in October.
"The concept of fair value accounting is correct and useful, but the application during periods of crisis is problematic," he said.
Under Mr. Herz, the board had angered banks and bank regulators with proposals to expand the use of fair value accounting, including for some loans.
A reasonable carbon price would ensure that "true and fair value" accounting leads to a shrinking fossil fuel industry whose access to capital is significantly impaired.
Facing political pressure to abandon "fair value" accounting for banks, the chairman of the board that sets American accounting standards will call Tuesday for the "decoupling" of bank capital rules from normal accounting standards.
Freddie, for instance, is technically insolvent under fair value accounting rules, in which the company puts a market value on assets as if it had to sell them now.
This is despite a near £300m pension deficit, £70m of annual deficit recovery, a construction like balance sheet (provisions, pre-payments etc) and some aggressive accounting (e.g. fair value accounting / depreciation sales of only 1.2%).
Under so-called "fair value" accounting, however, book-keepers can now record the value of an asset at its market price (ie, the price the company could get for it).
