Were you shocked by the title of this post? It comes from a quote by William Isaac, former FDIC chairman. The quote was posted on a recent accountingWEB article that contains the results of an exclusive interview they had with Isaac regarding the FASB proposal to require loans to be carried at fair value.

I don’t think he really likes the idea. I encourage you to read the article, but here are some quotes that I found particularly poignant.

“FASB’s proposal is incomprehensible and irresponsible”

“The three members of the board who voted in favor of this proposal are like religious zealots worshipping at the altar of fair value. Not only is this proposal bad for the economy, it is bad accounting because it doesn’t recognize the banking business model.”

“Banks are going to stop making loans and simply hold short-term investment securities. That is what they did in the Great Depression, which led President Roosevelt in 1938 to order the bank regulators to stop using market-value accounting and instead use historical cost accounting. FASB board members have no clue about the economic destruction they are causing.”

I found the last point informative. I wonder if anyone has written a paper on the history of fair value accounting. I also wonder how other banking regulators view the proposal.