Norris: Blame Accountants
Floyd Norris blames much of the crisis on the corrupt Accounting profession:
“That is one of the clear lessons of the financial crisis that drove the world into a deep recession. We now know the major banks were hiding dubious assets off their balance sheets and stretching rules if not breaking them. We know that their capital was woefully inadequate for the risks they were taking.
Efforts are now being made to improve the rules, with some success. But banks have persuaded politicians on both sides of the Atlantic that the real problem came not when their financial inadequacies were obscured by bad accounting, but when they were revealed as the losses mounted. . .
The banks have argued that market values can be misleading, and that their own estimates of the eventual cash flow from assets are more realistic than what they — or others — will now pay for those assets. The rules already allowed them to ignore so called “distress sales” in assessing fair value, but the banks pushed to broaden that exemption in the United States, while in Europe they got the regulators to allow them to retroactively stop calculating market value for assets they said they did not intend to sell.”
That sounds about right . . .
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Source:
Accountants Misled Us Into Crisis
FLOYD NORRIS
NYT, September 10, 2009
http://www.nytimes.com/2009/09/11/business/economy/11norris.html
September 11th, 2009 at 11:31 am
so much for SarbOx..
“…July 01, 2004 — CIO —
When CIOs began installing ERP systems in the ’80s and ’90s, they unwittingly took something that used to belong to CFOs: financial controls. The things that accountants used to monitor manually—such as making sure that two signatures from the right people went on every check, or reconciling purchase orders against invoices—all became automated inside ERP systems. The meticulous audit trail that controllers and accountants had established over generations for demonstrating that money was being handled properly (think of black, leather-bound ledgers and long ribbons of adding machine paper) disappeared into those ERP systems without a trace—or at least without being properly documented, and certainly not to the extent now required by the 2002 Sarbanes-Oxley Act, a.k.a. Sarbox.
Today, CFOs want those controls back. If they don’t get them, they believe they could go to jail. Section 404 of the Sarbanes-Oxley Act mandates that CFOs have to do more than simply pledge that the company’s finances are correct; they have to vouch for the processes used to add up the numbers. (See “What Section 404 Says,” Page 60.)..”
http://www.cio.com/article/29187/Compliance_The_Sarbanes_Oxley_Sarbox_Conspiracy
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=SarbOx
have we even had any ‘404′ convictions?
September 11th, 2009 at 11:38 am
it’s like 1999 all over again
Mark:
Couldn’t find the 404 page of convictions
September 11th, 2009 at 11:41 am
another BS article, does cat comcast exon have corrupt accounting, no ………….one more time 30-1 leverage, u better be able too count, it’s banks and investment banks who got and continue to get special treatment, when the ceo says put it here, it goes there, pretty simple
September 11th, 2009 at 11:58 am
Um… they are still hiding the dubious assets and now we aren’t even allowed to know what market value is….
Very very strange things happening today, equities disconnected from EUR:JPY earlier in the day, and JPY:USD is screaming off the charts even as Treasuries stay well bid. Is the yen (and gold) the safe haven currency now?
Closed all my long dollar trades for now. No sense in taking a beating, and no idea where we are going next week.
September 11th, 2009 at 12:00 pm
I think they’ll try to close gold above $1k today. No more dipping the toes in the pool
September 11th, 2009 at 12:13 pm
Is gold the next bubble?
September 11th, 2009 at 1:15 pm
“their own estimates of the eventual cash flow from assets are more realistic than what they — or others — will now pay for those assets.”
Amazing. How come I cannot convince my broker that this rule applies to me? When they issue a margin call, I get 10 minutes (or less) to fix the problem. They don’t care what I think the position is worth.
http://blog.mdwoptions.com/Options_for_Rookies
September 11th, 2009 at 1:16 pm
beaufou
“Is gold the next bubble?”
That’s certainly what many are hoping for, you can bet on that.
September 11th, 2009 at 3:28 pm
Sounds about wrong. As always, the blogosphere and the media completely botch the accounting issue, probably because they don’t know wtf they are talking about. Go read a god damn 10-Q or Quarterly presentation for christ sake.
September 11th, 2009 at 8:50 pm
How’s it possible? I thought sarbens-oxly cured all accounting problems of the past.
What? Are you saying regulations don’t work?
Or, the US politicians can’t get anything right? They should just give up IMO.
September 13th, 2009 at 7:31 pm
This is nonsense!
I read this blog because I think you are all quite bright….but when you buy into the idea that a group of auditors brought down the house of cards created by the finance industry I gota say you have missed the boat called leverage. That folks, leverage, is what caused this crisis, not accounting. It is amusing how every company, financial and otherwise, have a dislike for historical accounting and want some form that represents the current value of their assets and some bean counter is supposed to make that magic number appear. Do you know or remember what auditors do? They report on what the company represents. They don’t create numbers. So go to the source, not the messenger.
Additionally, as long as the auditor gets paid by the client what do you expect. Are they supposed to be independent and have their contracts terminated? Then we have no financials more unemployment and the leverage just goes on. Auditors are stuck representing clients but at the same time trying to maintain “independence.” They do that by reporting on the financial statements. Sarbanes was put together because management keeps lying to the public. Problematic, yes. Just an attempt to fill in for the lack of moral responsibility exhibited by the current group of corporative executives that can’t seem to tell the truth or keep their fingers out of the cookie jar. Do you remember what Margaret Thatcher said? Without morality capitalism will fail.
So why not look to leverage, a group of less than honest business types, and a lack of morality if you must blame something or somebody.