Q1) The U.S. saving and loan crisis is the biggest banking downfall after the great depression in 1929, the biggest percentage arise from Texas state saving failure. Saving and loans used to be banks that low interest rate to help people with limited income, at the same time the federal bank require these banks to funds mortgage by there saving account. In the 1980’s saving accounts became unpopular and the banks loss there costumers. The banks asked the Congress to remove the restriction on loans to value ratio, then they start rising their capital by investing in the commercial loans and speculative real estate, at the began it increased their assets by huge amounts, in some Texas banks it increased by 100% each year. In 1983, 35% of the banks were unprofitable and 9% went bankrupts, the federal insurance gradually run out of money and the banks continue providing bad loans until 1989 the Congress and the president informed about this problem and they interfered in it and solve by providing $50 billions to close failed banks and stop the losses, then the formed new government agency called the resolution trust corporation RTC to deal with miss done by these banks and to refunds the depositors. (1). In easy way we can say the reasons of the U.S 1980’s crisis is the absence of efficient oversight, these banks gave loans to every one without taking concern of how they will pay it back, the main reason in our view is that people could not pay back there loans. (2). The same problem arises in Japan in the 1990’s, after the U.S crisis in 1980’s, which harm the Japanese financial position a little bit, Japan start growing in unusual way, there Nikkei reached 37,189 in January 1990 from 10,000 in 1984, then in 1992 the Nikkei reach 16,000. This financial crisis caused by the over investment and inefficient judgment of the growth they saw that leads them to brag of it, also, they make the same mistake of U.S banks, they provide a plenty of risky loans that were unpaid back. (3). For the global credit crisis in middle of 2007 and the 2008, there are many causes for which we can consider it as a complex mix of factors. The global crisis in 2007 starts in Europe in the early 2000’s by misleading in their investments and loans policies, then it moved towered U.S. then it moves around the worlds. Until now the analysis didn’t agreed about the causes of this crisis (according to our search and backgrounds). Here are some of the causes that we found; the rate cut of loans after the 1980’s U.S. crisis until 2004 (4), the high-risk loans provided by banks that don’t have enough solvencies, and the inaccurate perception about the future economic. Financial people are the responsible for this kind of situations and they should be able to handle the problems before it occur but this does not means that accountants are not able to do anything with it. By using the correct and reliable information about my organization accountants will be able to understand the organization financial position, which allows accountants and financial workers to be informed in details about any difficulties, faces the organization, to make sure that this information are accurate and reliable; accountants most be involved. Accounting practice should have an act and treatment for this kind of problems. By using fair value model and provide timely information and reflecting the current position for investors. Accounting should use fair value for long-term debt and long-term investment because the risk factor and economic condition.

Q2) The author think that historical cost model failed to provide timely information for investor and regulation. The financial crises happened because of amortizing and capitalize financial instruments. The historical cost does not give us information about economic condition and risk rate . also, does not reflect the true value of instruments . the author suggest switching to fair value model to measure it more accurate with respect of economic conditions. I think fair value model is better than historical method because give us early warning and timely information with latest price and value. (Linsmeier).

Q3) MR Linsmeier propose that accounting for debt investment should switch from historical cost into fair value model. On other word all financial instruments should be measured at fair value in the financial statements. Also he give an evidence for how amortize cost model failed to provide timely information. The economic condition changes throw time. Fair value model can reflected credit rate and interest rate which control risk .he give examples about financial crises in Japan and USA happened because amortized cost model. The financial statements do not reflect the value of investment according to amortizing cost method. He argues that fair value model can give early warning about investment. On other hand, amortizing cost with impairment check does not give early warning. In USA crises, there is mismatch between assets and liabilities.

Q4) Since, the writer strongly suggested and favored the fair-value method we will describe it last. So, the amortized cost model judging by what we learned in ACCT-302 in the “Intangible Assets” chapter, amortization means expense the acquisition of cost minus the outstanding value of intangible assets in methodical approach over the estimated useful life; such as, straight-line method and we think that the logic behind the amortized cost model in accounting for financial instruments is to determine the lifetime of the assets. On the other Hand, the fair-value model requires the estimation of the price that is fair between two specific parties. Apart from that, we think that the logic behind the fair-value method is attract into account the relevant advantages or disadvantages that each will gain from the transaction. Also, the writer gave another aspect to the equation when he mentioned the ability of the fair-value to provide an early warning to both the management and the investors when there might be a risk on a declining of the prices of the assets according to the market expectations

(1) about.com/ us economy. http://useconomy.about.com/od/grossdomesticproduct/p/89_Bank_Crisis.htm

(2) http://www.grips.ac.jp/teacher/oono/hp/lecture_F/lec10.htm

(3) macrohistory. http://www.fsmitha.com/h2/ch37-japan2.htm (4) VOX
http://www.voxeu.org/article/global-financial-crisis-what-caused-build