Off-Balance-Sheet Accounting Change-So Near Yet So Far
April 30th, 2009 | 
Author: Here is some very good news that contains an interesting twist. According to Bloomberg.com, FASB is close to announcing rule changes that will force banks to severely limit off-balance-sheet accounting. The twist is that it will not be implemented until next year:
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As Banks Try to Shore Up Their Balance Sheets With Profits, How Much Risk is Too Much?
It is clear that the recession that we are in is largely due to the excessive risks that banks were taking on (and off) their balance sheets. While some banks have become more risk averse as a result, Goldman Sachs continues its aggressive proprietary trading practices. According to Bloomberg.com:
Are the Bank’s Profits Really Good News?
Goldman Sachs, J.P. Morgan, and Bank of America all recently announced earnings that far exceeded analyst’s estimates- Halleluiah! But wait a minute, where did those profits come from? The answer is: trading. But didn’t trading losses help create this mess to begin with? This underscores a fundamental problem with our financial institutions- an inordinate amount of earning power is concentrated in a few small profit centers. These profit centers employ traders and money managers whose skills allow them to theoretically make huge profits and amass enormous bonuses, and that creates an incentive to take on excessive risks.
Carl Icahn to Shareholders: When it Comes to Incentive Comp, Just Say No
Legendary investor and shareholder rights activist Carl Icahn wrote an article that appears in the Huffington Post, and on his Blog The Icahn Report- “It’s Up to the Shareholders, Not the Government, to Demand Change at a Company.” In this excellent article, Mr. Icahn describes how he addressed the issue of retention bonuses at a company that he was saving from bankruptcy:
When the Going Gets Tough, The Tough Try One More Time
While tenacity is always a trait of successful individuals, in difficult economic environments like these it is even more important than ever. In The “Just One More” Solution,” John Baldoni tells about a friend that made sixty-two phone calls over a sixteen month period to a prospect before he got a meeting and landed the account. He goes on to describe the “one more” solution:
Goldman Sachs CEO to Wall Street: “We have to recognize a higher responsibility”
Last week, Goldman Sachs CEO Lloyd Blankfein delivered a speech to the Council of Institutional Investors, and I was encouraged by much of what he had to say. Market Watch posted a full text of the speech, and here are some of the more interesting excerpts:
Can The Financial Services Industry Finally Learn From Its Mistakes?
Over the past several months, I have been spending a great deal of time studying everything that I could find about the history of financial crises in the hopes of understanding how my beloved financial services industry could wreak such widespread havoc upon the global economy. One of the things that surprised me the most was how we, as an industry, have demonstrated a propensity to repeat the same mistakes over and over again. Winston Churchill’s assertion that “those that fail to learn from history, are doomed to repeat it” has never carried greater resonance. In an excellent article on Bloomberg.com, Simon Clark discusses a warehouse of documents that Barclays Plc maintains that:
SEC Advances 5 Uptick Rule Proposals for Public Comment
The SEC has put forth 5 proposals for reinstating some sort of uptick rule on short selling stocks:
Ending the Financial Crisis: A Call to Action
On March 23 and 24, The Wall Street Journal sponsored the Future of Finance Initiative to discuss how to restructure the financial system to avoid the kind of economic crisis that we are now experiencing. The panel of nearly 100 participants included ex-Treasury Secretary Robert Rubin, ex-Fed Chairman Paul Volcker, financiers George Soros and Stephen Schwartzman, and Nobel Prize winner Myron Scholes. The group published “A Call to Action” that documents “20 principles for rebuilding the financial system”. Here is a brief synopsis of the 20 principles:
‘Mark’ Rule Change May Impair Treasury Plan- But is That Bad?
On Thursday, the Financial Accounting Standards Board is voting on FAS 157-e, which would allow banks to use their own judgment in valuing assets if there are no bidders for those assets. Some bankers and accounting experts believe that this rule change would undermine the Treasury’s plan to get the banks sell up to $1 trillion of these assets to a fund that combines private and public financing. According to the Wall Street Journal:
Causes of the Financial Crisis Part 8: Overconfidence in Quantitative Risk Management
Causes of the Financial Crisis Part 7: Financial Deregulation
Over the last 30 years, there have been a number of laws passed that have deregulated the financial services industry. Many of these changes contributed positively to the industry, while others led to conditions that contributed, unwittingly, to the current financial crisis.
Will Commercial RE Defaults be the Next Bank Shoe to Drop?
In the face of rising vacancy rates and commercial real estate prices falling nearly 20% in the past year, commercial mortgage defaults may be the next bump in the road for the recovery of U.S. banks. According to Bloomberg News:
Finra Warns B-Ds Not to Let Cost Cutting Lead to Lax Oversight
