Economics and Accounting

Apparently there is an old journal of Economics and Accounting in its approximately 50th volume. Never knew. Here are two papers on mark to market:

"Do accounting measurement regimes matter? A discussion of mark-to-market accounting and liquidity pricing" by Sapra Haresh (The University of Chicago, Graduate School of Business), published in August 2008.

Abstract

Using a model with banking and insurance sectors, Allen and Carletti show that marking-to-market interacts with liquidity pricing to exacerbate the likelihood of financial contagion between the two sectors. In this discussion, I lay out the main ingredients of their model and explain how they interact with liquidity pricing to generate financial contagion. I then discuss some limitations of their model and propose an interesting extension.

Here's another one also from last month

"Mark-to-market accounting and liquidity pricing," by Franklin Allena, , and Elena Carlettib (Wharton School, Penn and Univ. of Frankfurt, Germany), published August 2008.

Abstract

When liquidity plays an important role as in financial crises, asset prices may reflect the amount of liquidity available rather than the asset's future earning power. Using market prices to assess financial institutions’ solvency in such circumstances is not desirable. We show that a shock in the insurance sector can cause the current market value of banks’ assets to fall below their liabilities so they are insolvent. In contrast, if values based on historic cost are used, banks can continue and meet all their future liabilities. We discuss the implications for the debate on mark-to-market versus historic cost accounting.

Both are on the printer and queued up into my impossibly long stack of papers I need to read to get up to speed on this shizznat.