How bad an idea is the banking industry’s proposal to make it easier for banks to hide how insolvent they are? Before you answer, know that it ain’t that hard now: Citi and Bank of America are called “zombie banks” for a reason.
Well, I’ll tell you how bad an idea it is: Even the U.S. Chamber of Commerce thinks it’s a bad idea:
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.
The mechanism is contained in an amendment set to be introduced in mid-November by Rep. Ed Perlmutter (D-Colo.) that would move final authority over the Financial Accounting Standards Board (FASB) from the Securities and Exchange Commission to a new body, a so-called “oversight” board, that would include the officials charged with managing systemic risks to the financial markets.
These regulators would have the authority to override FASB’s accounting guidelines by taking into account economic conditions.
The move is so radical that it has split corporate America. The bankers and members of Congress who support it have earned themselves an unlikely enemy: the U.S. Chamber of Commerce.
A typical business or investor, after all, prefers honest, independent accounting, because they buy and sell real things based on real value.
Well, of course the typical business or investor prefers honest, independent accounting. But in case you hadn’t noticed, that isn’t who our financial system is run by or for.
Digby, commenting for the win: “Back in the day when we all jabbered on about the Reality Based Community, I used to joke about this very thing. I said we should apply these same lies we use in foreign policy to the economy and see what would happen. By God, it looks like they are actually trying to do that.”
