Still, in periods of financial stress, when some markets don’t exist or are highly illiquid, “the numbers that come out can be misleading or not very informative,” Bernanke said. Regulators could provide “guidance” on reasonable ways to value assets, he said.

The fair value standard (FAS 157) is not prepared to accurately report what’s been happening to asset values. The handwringing over what suspension of fair value (aka mark-to-market to the journo crowd) will accomplish is irrelevant. It amounts to considering the competence of the lock on the barn door now that the horse is out.

Fair value’s use of spot price has lacked the essential tool necessary to measure asset value over the last 18 months, and really the last decade - reason. The standard is unable to distinguish between orderly markets and markets where fear and speculation govern price. We cannot brush these time frames aside as anomalous because they will recur. Speculation is with us for the long haul. Its excess and the wrenching extraction of the excess accompany societies across centuries.

Fair value was not only useless but harmful during the long period of asset price escalation. It aided and abetted the false representation of value on balance sheets. Seismic sums of debt were taken on in the name of unrealized gains on balance sheets supported by fair value reporting. Now, the obligations remain at their historical cost but the assets they funded are unable to recover 50% of their reported “fair value” from that time.

The speculative trend in asset prices has reversed and fair value remains useless and dangerous as a relied upon reporting standard. It really represents liquidation value, which is of no use to investors unless their investment will be, or is required to be, liquidated into the spot market.

In any extended period where credit flow is not functioning in an ordinary and customary manner, fair value loses its accuracy and relevance. This was true when credit poured from a faucet, leading to inflated asset values, and now, when it is scarce and extremely restricted as a function of bank balance sheet collapse.

The values being returned under observable market prices are not reflective of fair value. They reflect structural failure of the marketplace. Therefore, observable prices are invalid for valuations other than liquidation, making fair value reporting just as invalid.