Specifically, GNAIE told the FASB in a letter that "the application of fair value accounting measurements to an inactive, illiquid, and disorderly market for structured credit products helped fuel the worldwide credit crisis." GNAIE's proposed Financial Statement Presentation EITF 99-20-a, holds that while the organization does not believe that fair value measurements caused the global credit crisis, "unreliable and non-transparent fair value measurements served as a powerful accelerant." According to the group, fair value accounting rules require assets be valued at their current market price or "marked to market," rather than the price paid for them.
The December letter to Robert Herz, FASB Chairman from Kevin Spataro, chairman of GNAIE's accounting convergence committee, said that "Fair Value Measurement (SFAS Statement No.
GNAIE, whose members include the largest global providers of life insurance, property/casualty insurance and reinsurance, also advanced what it considers to be a practical and easily implemented solution to the issues created by SFAS 157 using existing mechanisms within U.S.
According to GNAIE, an example of the fundamental shortcomings of SFAS 157 involves situations where the condition of a market migrates from active, liquid and orderly to inactive, illiquid and disorderly, resulting in the unavailability of sufficient data to support fair value measurements either on a direct or indirect basis.
GNAIE believes the severity of the current situation is largely attributable to SFAS 157's replacement of the basic notion of a "willing buyer and seller in an arm's length transaction other than in a forced or liquidation sale" with the "price received to sell an asset or paid to transfer a liability in an orderly transaction at the measurement date."
GNAIE's proposed solution is to migrate from a "fair value measurement under SFAS 157 to an amortized cost/incurred loss measurement paradigm applied to identical loams outside the structured credit products that are not held in securitized or certificated form, but only in situations where markets are not active, liquid or orderly.
In its letter to the FASB, GNAIE called on regulators and standard setters to work together to identify and implement sound solutions that will be effective as of December 31, 2008.