Blog on the Run: Reloaded

Wednesday, April 28, 2010 5:49 am

So nice they said it twice


Both Barry Ritholtz and Bill Fleckenstein think the SEC ought to sue not only Goldman Sachs but also the Financial Accounting Standards Board, whose accounting rule changes have so degraded accounting standards that companies, even publicly traded ones, essentially are bound by no rules. Want to know why Citi, Bank of America and probably Wells Fargo haven’t been taken over by the government even though they’re basically insolvent? Because the FASB is allowing them to carry loans on their books at roughly three times their probable market value.

Ritholtz:

As far as investors are concerned, (FASB has) have eliminated (standards). There is essentially no oversight of companies by accountants any longer. Accounting statements are all but worthless.  Frauds like Enron, Lehman Brothers and Overstock.com are everywhere. Companies can hide risk from investors, misstate earnings without fear of reprisal, engage in any manner of deceptive gamesmanship.

There are many reasons to buy various publicly traded companies — but what they report in their balance sheets ain’t one of them.

Fleckenstein:

The SEC also ought to consider pursuing the Financial Accounting Standards Board for helping denigrate accounting standards to the point that so much smoke and mirrors could pass for legitimacy.

Had real accounting standards been at work, they likely would have prevented the banksters from walking away with fortunes while they built financial instruments of mass destruction.

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