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How to stop window dressing at banks

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April 10, 2010 – Comments (2)

Morgan Housel has a good article about accounting gimmicks at banks. In this connection, I would like to make a simple suggestion how to end the practice once and for all. Pass a law saying that the top 10 banks must report to shareholders on the same day. That should be it because then on the reporting day the banks will have no one to sell their assets to.

2 Comments – Post Your Own

#1) On April 10, 2010 at 11:58 PM, AbstractMotion (53.78) wrote:

Wouldn't help, I think Citi has already proven it can spin off smaller shell companies simply to hide assets.  Likewise as much as I hate to say it I'm sure there's plenty of people who would be willing to provide such a service for a fee as long as it remains legal to do so.  

 

Outlawing the use of short duration swaps that allow banks to engage in such transactions would help a lot more in my opinion.  I kind of doubt that's going to happen though as a lot of the clever hiding of bad assets and ridiculous valuation standards and essentially supported by the government at this point.  Still it's clear a lot of these agreements and massive amounts of short term credit were largely responsible for the collapse of both Lehman Brothers and Bear Sterns, it's surprising that regulation hasn't been put in place to stop the practice.... then again it's surprising regulation hasn't been put in place to address every other problem with the banking system that this crisis revealed.  Apparently anger and lethargy don't compliment each other too well when it comes to crafting public policy.

 

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#2) On April 12, 2010 at 11:06 AM, jdlech (< 20) wrote:

For as long as rules existed, people have tried to circumvent or subvert them.  Of course, we've had rules for nearly as long as we've had people behaving badly.

 The moment you make a rule, law, regulation, etc.. someone, somewhere will immediately set about to break it in spirit without actually breaking the letter.

Make that illegal.

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