Legislating Basic Math for Banks
Civil War In Corporate America: Banks Battling The Chamber On Accounting Rules
Amid the ongoing financial regulation overhaul, the banking industry is hoping to pull off a quiet power grab that has eluded its grasp since the Great Depression, by stripping the independence of the board that sets financial accounting standards.
The move could effectively let banks set their own accounting standards in rough economic times.
Astonishingly, at a time when the public is crying out for greater regulation to limit excessive risk-taking by financial institutions, the banks are trying to get Congress to agree that the next time there's a big downturn, they should have the ability to alter their accounting standards -- essentially, fudge the numbers -- so that the public and investors won't be able to tell how insolvent they really are. By ignoring their declining asset values, they can avoid the standard requirement of raising more capital.
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Rep. Alan Grayson (D-Fla.) fought a lonely battle last spring to stave off the loosening of the accounting rules and opposes this more dramatic shift, as well. Banks may have good reason to want to overstate the value of their assets, he said, and it may work for a time. But an economy can't be run indefinitely on imaginary numbers. "I enjoy reading fiction, but not in financial statements," he said.
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The amendment would empower the council overseeing FASB to "recommend to the SEC, either publicly or privately to take such action as is necessary, including but not limited to suspension, modification or elimination of such accounting principles, standards or procedures as they may apply to the stability of the financial system or the safety and soundness of financial companies, as a whole, for such duration as is reasonable and appropriate."If the SEC doesn't follow the "recommendation," according to section (c) of the amendment, the council can order it to do so.
In other words, for the sake of financial stability, bank regulators could secretly order the "elimination" of accounting standards.
Deregulating accounting standards is basically allowing banks to legally say 2 * 2 = 5. This is not how you boost confidence in the banking system. Are they psychotic? This should NEVER be allowed. We already know that deregulation has caused so much damage throughout the history of not just the United States of America but the World.
One of the major problems with deregulating accounting standards is that banks use the fractional reserve system... Any fudging of the numbers can be multiplied. Derivatives are not regulated in any way, they are leveraged contracts (so profits and losses are multiplied), and they are called the economic black hole. We shouldn't let the actual balance sheet of banks to become the same black hole. This would make the problem of insolvency invisible. As in, this is helping to destroy capitalism for ponzi schemes.
Lastly, a laps of accounting standards led to the ongoing sub-prime crisis. Allowing a fast food restaurant employee to claim a monthly income of $5,000 per month was unsustainable in the long term. Now the banks are lobbying for this fraud to legally occur on their own books?
How can you legislate and legally argue that 2 * 2 = 5? This is the same as you claiming your personal net worth is $1,500,000,000. No matter how much you try, it's just not true. How can lying for profit be legal?
Holy crap.