We are left to conclude that either: (a) the commission couldn’t bring itself to even ask the tough questions about financial reporting; or (b) it didn’t know enough to ask the right questions; or (c) all of the above.
If the S&L debacles, and then the Enron-era debacles, and now the ‘financial crisis’, all in less than 20 years, are not enough to kick start a fundamental re-thinking of financial reporting, then what will it take?
FASB Chair Leslie Seidman and accounting know-nothing Mary Schapiro (SEC chair) must be extremely relieved to have escaped the spotlight. Everybody knows that the accounting standards for loans, derivatives, repurchase agreements, securitizations and even contingent liabilities all stink, and nothing more than band aids have been proposed thus far.
Selling describes these accounting standards as “highly coveted by the members of the American Bankers Association – a lobbying group with political clout fast approaching the NRA’s”
For repo watchers, some of the questionable accounting standards include (1) letting companies net repo loans with repo borrowings, when conducted with the same company, and report only the difference, (2) not requiring detail on collateral, and (3) not requiring detail on rehypothecation. The results are a grossly incomplete picture of a financial institution’s true debt and capital requirements for investment and commercial banks that don’t reflect the institutions’ true risk.