Make Markets Be Markets: Restoring the Integrity of the U.S. Financial System

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Permalink Reply by Bill M Wright on March 18, 2010 at 8:11am

Thanks for posting this document. While I've only finished reading about 1/3 of the articles; it's clear by the Institutes name "ROOSEVELT" and granddaughters board member that this organization is a reflection of the USA uprising againest the very foundations of the 80's Reagan's deregulation movement and Chicago School of Business and Milton Friedman Economics.

Roosevelt was himself, dare I say, somewhat of a Socialist relative to America Presidents like Reagan's laissez-faire business philosophy . The Russian Revolution in 1917 caused the Western Capitalist World to fear the worker/ union backed Communist movement as much as traditional monarchs.

The 1930's financial crisis resulted in thousands of bank failures with NO FDIC INSURANCE and the depression resulted in tossing out the old laissez-faire business ( like today) administration with the new pro-regulation Roosevelt administration. And like the 30's it took about 3 years to finalize new regulation.

I have a video clip from an opposition group and " The Man Who Said Proposed 1933 & 34 SEC Regulation Doomed USA" on my website: 1929 Market Crash & Financial Crisis - Financial History Lesson

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Permalink Reply by Werner Reisacher on March 19, 2010 at 3:37pm

Very interesting topic and, as usual, a great contribution from Bill.
Let me add some comments from an accounting point of view. Many professional opinions and contributions have been written on this topic They are covering monetary, economic, and social aspects. Most of them conclude that the depression was the consequence of bank failures and the lack of government controls. Being an accountant, I tend to focus on the root of the problem rather than symptoms and resulting consequences. We seem to forget that – not unlike today – the crisis was preceded by auditors allowing companies to “cook their books”. The result was companies’ reporting record profits before going bankrupt and the auditors declaring that their opinion was based on “common practice”. Investor’s lost confidence in their investments, stock prices crashed, and we know the rest of the story.
Unfortunately, the underlying problem of banks being able to “cook their books” does still not seem to trouble the “accounting profession” and all those who should know better. Enron’s fraud was based on the use of “variable investment entities” (VIR). Since none of the investors in such entities did hold a majority, they did not have to consolidate such activities and were able to treat their investments as off-balance sheet transactions. FASB 167 Amendment FIN 46R implemented in 2003 requires now that the party that carries the highest risk in such ventures must consolidate the entire entity in its group accounts. This ruling does however not impact Banks and Financial Institutions since they do not benefit from the loophole that was created by using VIR’s.
The vehicles they are using for the same intent and purpose are called SPE’S or SIV (special purpose entities or special investment vehicles) Since the words SPE or SIV are not mentioned in the FASB 167 FIN 46R , the ruling to consolidate these entities does not apply to them. According to a KPMG publication March 10th 2010 - # 10-11, the decision about the treatment of the SPE’s and SIV’s has been deferred until a united decision by the FASB and the IASB has been reached.
Fasten your seat belts!

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