To hear some tell, it's a set of accounting rules that have plunged the nation into economic crisis.

"Mark to market accounting rules . . . forced Citigroup, Merrill Lynch, UBS, Morgan Stanley and other financial institutions, including AIG, to book tens of billions of dollars in accounting losses, despite the fact that most of the underlying securities were not in default," AIG CEO Robert Willumstad told the House Oversight Committee this week in a hearing over the failure of the multibillion-dollar insurance company.

It is not the isolated opinion of a tarnished executive seeking to lay blame elsewhere. A chorus of bankers, financial industry advocates and their backers in Washington, D.C., succeeded in inserting language into the $700 billion bailout bill that undermined mark-to-market or "fair value" accounting.

The bill explicitly gives the Securities and Exchange Commission the power to suspend the mark-to-market rules (although the SEC already was the ultimate authority on all accounting matters when push came to shove).

The slap at mark-to-market accounting came despite loud lobbying by several investor and accounting-industry groups, with the Center for Audit Quality and CFA Institute defending the rules.

Here is the issue: Companies must price many of their financial assets at fair value each quarter when preparing their balance sheets. If the company must write down the value, it might have to take a loss against income. And losses can reduce a financial company's capital, making it violate the standards for what a well-capitalized institution must have on its books.

The problem comes in the current market, with sharp declines in many mortgage- backed securities and other exotic derivatives.

Accounting rules specify that if an asset is freely traded with an easily observable market price, that is the value to use. Today's most toxic investments, however, are rarely traded and difficult to value. So companies are allowed, to some degree, to estimate the value of these investments.

The arguments come as more and more owners of these troubled assets sell them off at sharply reduced prices. Are these "distressed sales" that can be ignored under the rules, or do repeated transactions at low prices signify that there really has been a sharp decline in their value?

Colorado is home to people on both sides of the issue.

"When you don't have a market - when nobody is dealing in the security - you can't value them," said Don Childears, CEO of the Colorado Bankers Association. The group's membership overlaps with the American Bankers Association, which argued for the suspension of mark-to-market accounting.

Childears said that banks have been hurt by the sharp decline in value of mortgage securities from Freddie Mac and Fannie Mae, the giant mortgage guarantors seized by the federal government last month.

"It has real value, but because there's no trading activity right now, it's detrimental to balance sheets to mark it down."

Lynn Turner, the former chief accountant of the SEC, took the opposite approach as he testified about AIG before the House Oversight Committee.

"We seldom hear such loud screaming and complaining when the markets are rising, and gains, not losses, are being recorded under fair value accounting," Turner, a Colorado resident, said. "But when the values of assets have become impaired, managers often don't want to tell their investors that the assets under their stewardship have lost value."

"While markets are illiquid at times, as with a thinly traded stock, that is no reason to simply ignore the best estimate of a market value or a calculation of a fair value," Turner said. "The reason markets are sometimes illiquid is there is no one who is willing to pay the price the seller wants because that price provides any buyer an insufficient return on their investment."

Vitaliy Katsenelson, a CFA charter holder at Denver-based Investment Management Associates, said "in the short run, maybe they can figure out some compromise."

Fair value, he says, "assumes liquidity in the market . . . right now is a very irrational time."

But, he said, "if you were to allow banks to basically decide the value on their own, it opens the door to cheating, and it causes people to lose trust in the numbers. As a securities analyst, when I see 'mark-to-model,' I discount it."