6/6/2008: SEC investigates AIG's valuation of CDS's

Excerpt from SEC, Justice Scrutinize AIG on Swaps Accounting
By Amir Efrati and Liam Plevin

"At issue is the way the company valued credit default swaps, which are contracts that insure against default of securities, including those backed by subprime mortgages. In February, AIG said its auditor had found a "material weakness" in its accounting."

Sabaziotatos says:

If we have learned anything over the last year, it is that fair value accounting for credit default swaps is highly controversial and that valuations resulting from market inputs (whether Level 1 observable or Level 3 unobservable) are suspect. This blog has documented AIG's legitimate efforts to get the SEC and FASB to change the accounting for CDS's.

This is another blow dealt the American (and global) financial system by overzealous fair value accounting theorists and Spitzeresque prosecutors.