No doubt Bob Herz, chairman of the Financial Accounting Standards Board, left a few folks squirming in their seats with his frank assessment of how the markets managed to arrive—again—at a state of crisis. At a recent PricewaterhouseCoopers conference, Herz pulled no punches in describing how market players seem to have a flashcube memory about how chaos erupts.

From the savings-and-loan crisis of the 1980s to the dot-com burst and financial reporting scandals of the new millennium, there are lessons to be learned, said Herz. “But, unfortunately, some of the lessons seem to be forgotten and have to be ‘relearned’ again and again multiple times,” he said.

Herz laid blame in no one place, but pointed to a variety of causes for the current crisis—including overzealous lending and securitization, selective ignorance of risk and liquidity problems, engineered accounting, and “black holes” in the regulatory structure, especially with regard to banking and insurance. He also cited “perverse incentives” and inflated CEO compensation.

Herz acknowledged accounting standards left loopholes to be worked, but blasted the mentality that loopholes are meant to be worked. He specifically discussed consolidation and derecognition rules in Financial Accounting Statement No. 140: Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and Financial Interpretation No. 46R: Consolidation of Variable Interest Entities, both of which are in the process of being amended. The FASB published exposure drafts to amend FAS 140, amend FIN 46R, and establish additional guidance that would redirect off-balance sheet accounting.

Ultimately, said Herz, the solution rests in a simple concept we all learned in elementary school. “Just don’t look for others to fix problems that may be under your control,” he said. “Keep the Golden Rule of ‘doing unto others as they would do to you’ in mind.”

Claiming faith in his capitalist brethren’s ability to do the right thing, Herz says it would enable the markets to break the constant cycle of boom and bust. “But, if not, I may be back to give this speech in another six or seven years,” he lamented.