Fundamental Issues Lying behind the Sub-prime Mortgage Crisis (3): Financial-Accounting

Fair-value accounting seemes to come into play in the falling apart of U.S. financing market in the subprime mortgage crisis when investment banks were forced to write down values of CDOs, MBS and morgages sitting on their balance sheets. People argue that if the investment banks had disclosed asset values with historical cost accounting, there wouldn't have been a sharp down-turn of their asset value.
However, according to formal analysis, the fundamental problems lie in the capital supply and regulation. It seems that accounting standards generally turn into the target of criticisms after financial crisis, and this time fair-value accounting took the most blames. In our opinion, it is the improper and excessive risk assuming that brought down the operation of investment banks, and fair-value accounting just faithfully reflected the downturn value on banks' financial statements. To some extense, fair-value accounting facilitated the disclosure of the investment banks' overvaluation to broader investors and prevented the bubble from further growing. Had there been no fair-value accounting, but historical cost accounting instead, the information of increasing mortgage default might be still released through other media and reflected in the falling prices capital market. Therefore, fair-value accounting might have changed the timing of bursting, but it couldn't change other fundamental  causations of the bubble. In another word, to swich back to historical cost or other accounting measurement wouldn't prevent the submortgage crisis from happening.

A comment by Bob Pozen of Harvard Business School made it clear that fair-value accounting isn't the major causation of the financial crisis.