The Role of Accounting in the Financial Crisis:
Lessons for the Future
S.P. Kothari
[email protected]
617-253-0994
and
Rebecca Lester
[email protected]
MIT Sloan School of Management
E60-382, 30 Memorial Drive
Cambridge, MA 02421
December 14, 2011
ABSTRACT: The advent of the Great Recession in 2008 was the culmination of a perfect storm of lax regulation, a growing housing bubble, rising popularity of derivatives instruments, and questionable banking practices. In addition to these causes, management incentives, as well as certain US accounting standards, contributed to the financial crisis. We outline the significant effects of these incentive structures, and the role of fair value accounting standards during the crisis, and discuss implications and relevance of these rules to practitioners, standard-setters, and academics.


str 13 -16, spominje se retained/residual interest
" Tabela na str. 13
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(d) The residual interest ("Class R") relates to the portion of the securitized assets that are retained by the originator/securitizer. This interest can also be referred to as the equity interest.
..."


"Finally, the estimate of residual interests retained could be incorrect due to the same subjective assumptions used for valuing the servicing asset and the IO Class. Without a traded market for such interests, management generally bases the valuation for these securities on internally derived estimates. The discount rate used to arrive at a value for the residual interest should reflect the fact that these securities inherently hold the most risk and therefore should be considerably higher than the discount rate applied to more senior tranches or the overall mortgage." STR.15