Fair Value And The Recent Market Turmoil

The recent credit market turmoil, including the subprime meltdown and investigations into the failed auction rate securities market, has resulted in dramatic reductions in the trading prices of, and reduced liquidity in the markets for, securities and financial instruments at the focus of the crisis. Institutions recording the value of their assets based on current market prices have taken large write-downs, as prices have fallen and active markets, such as the mortgage-backed securities ("MBS") and auction rate securities ("ARS") markets, have disappeared. Market observers have noted that in some cases, the current fair value of these assets may be less than the present value of expected cash flows from these assets. This disparity between perceived and market 'value' has called into question applicable accounting standard Financial Accounting Statement 157, Fair Value Measurements ("FAS 157").¹ As discussed below, questions as to the impact of FAS 157 have been