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Wednesday, August 19, 2009

Financial Reform: Don't hold your breath

by Calculated Risk on 8/19/2009 10:00:00 AM

From Bloomberg: Scholes, Merton Says Banks Should Value Assets Better (ht Brian)

Financial institutions should use mark-to-market accounting or list the hard-to-value securities on public exchanges whenever possible, Scholes said in a Bloomberg Radio interview yesterday. ...

“I’d like to see us encourage many more securities held on the books of the banks be migrated to exchanges if possible,” he said. Doing so would “allow for market discovery and market pricing as much as possible,” Scholes added.
“This is not the way forward,” [Merton, Robert Kaplan and Scott Richard] wrote. “While regulators and legislators are keen to find simple solutions to complex problems, allowing financial institutions to ignore market transactions is a bad idea.”
Don't hold your breath.

And from the SEC: Sample Letter Sent to Public Companies on MD&A Disclosure Regarding Provisions and Allowances for Loan Losses (ht LDM)
Clear and transparent disclosure about how you account for your provision and allowance for loan losses has always been critically important to an investor’s understanding of your financial statements. ... Finally, although determining your allowance for loan losses requires you to exercise judgment, it would be inconsistent with generally accepted accounting principles if you were to delay recognizing credit losses that you can estimate based on current information and events. Where we believe a financial institution’s financial statements are inconsistent with GAAP, we will take appropriate action.
emphasis added
Don't hold your breath.

And from the Jackson Hole conference in 1987: Restructuring the Financial System. Concluding remarks from Gerald Corrigan:
Clearly there is a broad-based consensus that something has to be done about restructuring our financial system. There is even a broadbased consensus as to why it has to be done. I certainly would count myself among those who put considerable urgency behind the task of getting it done.
Nothing was done. Hopefully no one held their breath.