Frank Colcord's personal annotations on this page
This link has been bookmarked by 10 people . It was first bookmarked on 04 Jan 2009, by raman srinivasan.
-
-
How to Repair a Broken Financial World
-
-
Marc CharpentierBy MICHAEL LEWIS and DAVID EINHORN
-
-
In its latest push to compel confidence, for instance, the authorities are placing enormous pressure on the Financial Accounting Standards Board to suspend “mark-to-market” accounting. Basically, this means that the banks will not have to account for the actual value of the assets on their books but can claim instead that they are worth whatever they paid for them.
-
reducing transparency and increasing self-delusion
-
-
-
This is more plausible than it may sound. Sweden, of all places, did it
successfully in 1992. And remember, the Federal Reserve and the Treasury have
already accepted, on behalf of the taxpayer, just about all of the downside risk
of owning the bigger financial firms. The Treasury and the Federal Reserve would
both no doubt argue that if you don’t prop up these banks you risk an enormous
credit contraction — if they aren’t in business who will be left to lend money?
But something like the reverse seems more true: propping up failed banks and
extending them huge amounts of credit has made business more difficult for the
people and companies that had nothing to do with creating the mess. Perfectly
solvent companies are being squeezed out of business by their creditors
precisely because they are not in the Treasury’s fold. With so much lending
effectively federally guaranteed, lenders are fleeing anything that is not.Rather than tackle the source of the problem, the people running the bailout
desperately want to reinflate the credit bubble, prop up the stock market and
head off a recession. Their efforts are clearly failing: 2008 was a historically
bad year for the stock market, and we’ll be in recession for some time to come.
Our leaders have framed the problem as a “crisis of confidence” but what they
actually seem to mean is “please pay no attention to the problems we are failing
to address.”In its latest push to compel confidence, for instance, the authorities are
placing enormous pressure on the Financial Accounting Standards Board to suspend
“mark-to-market” accounting. Basically, this means that the banks will not have
to account for the actual value of the assets on their books but can claim
instead that they are worth whatever they paid for them.This will have the double effect of reducing transparency and increasing
self-delusion (gorge yourself for months, but refuse to step on a scale, and
maybe no one will realize you gained weight). And it will fool no one. When you
shout at people “be confident,” you shouldn’t expect them to be anything but
terrified. -
But keep the door open the other way. If the S.E.C.
is to restore its credibility as an investor protection agency, it should have
some experienced, respected investors (which is not the same thing as investment
bankers) as commissioners. President-elect Barack Obama should nominate at least
one with a notable career investing capital, and another with experience
uncovering corporate misconduct. As it happens, the most critical job, chief of
enforcement, now has a perfect candidate, a civic-minded former investor with
firsthand experience of the S.E.C.’s ineptitude: Harry Markopolos.The funny thing is, there’s nothing all that radical about most of these
changes. A disinterested person would probably wonder why many of them had not
been made long ago. A committee of people whose financial interests are somehow
bound up with Wall Street is a different matter.
-
Would you like to comment?
Join Diigo for a free account, or sign in if you are already a member.