There are a variety of problems behind the present market turmoil - chiefly reckless lending and inaccurate credit ratings of securitised debt. But one has so far had little attention - the role played by so-called "fair" value accounting.

The gold standard in financial reporting has long been "lower of cost or market", meaning an asset is on the books at either its purchase cost or its current valuation - whichever was lower. This conservatism counterbalances the inherent tendency of managers to overstate performance by preventing them from reporting profits before cash is in hand.