Blog Entries for Ron F

Why Herz's retirement may be bad for accounting

ronaldfink6@gmail.com — Wed, 25 Aug 2010 23:00:00 +0100

The retirement of FASB's long-serving chairman is no surprise. Eight years is a long time at the helm, especially when the last two involved a serious banking crisis in which accounting was a central concern. But Bob Herz kept a stiff upper lip and gave little quarter, even when playing defense and compromising where he had to.

When I interviewed Herz's predecessor, Ed Jenkins, he had clearly been through the ringer on everything from derivatives accounting to Enron. And it show [...]

Banks' asset values should be marked down by 20 percent: report

ronaldfink6@gmail.com — Tue, 24 Aug 2010 23:00:00 +0100

Jack Ciesielski has a new report out that puts banks' arguments against fair value squarely in their place. And the analysis alone should make short shrift of the industry's complaints, though it no doubt will do nothing of the sort.

The accounting expert and investment adviser who runs The Analyst's Accounting Observer finds that banks account for 96 percent of all the asset markdowns to the balance sheets of the S&P 500 that he estimates would result from enactment [...]

More trouble for banks

ronaldfink6@gmail.com — Thu, 19 Aug 2010 23:00:00 +0100

This trend has now reached California, so it's about to become a whole lot more meaningful.

Again, this may be a matter of paperwork, but at minimum, it seems like banks will have to spend time and money straightening out their claims to homes on loans they've securitized.

The problem has to do with the electronic record keeping system involved, known as the Mortage Electronic Recordkeeping System (MERS). But it's not just a technicality. How can anyone claim a right t [...]

A better way to boost demand

ronaldfink6@gmail.com — Wed, 18 Aug 2010 23:00:00 +0100

Bear with me here. This is going to be one of those "out there" posts. But Steve Randy Waldman takes an interesting stab at a problem I've been wrestling with, at least in the furthest reaches of the financial corner of my brain, since the financial crisis began.

And that is how to stimulate the economy without creating another asset bubble. It sounds easy enough to the Keynesians, but as Waldman has pointed out before, rebooting aggregate demand through traditional g [...]

Why regulators shouldn't listen to economists

ronaldfink6@gmail.com — Tue, 17 Aug 2010 23:00:00 +0100

This brouhaha over the Boston Fed's rationalization for missing the housing bubble reminds me of a conversation I overheard a few weeks ago between a former Federal Reserve bank supervisor and his counterpart at the New York Fed.

I can't give you their names since they were conversing privately a few feet away from me before the start of a conference on financial regulation (nor can I give you the name of the confab since that would give their identities away), and I just manag [...]

Keynes' biographer skewers deficit hawks

ronaldfink6@gmail.com — Tue, 17 Aug 2010 23:00:00 +0100

This piece published today by Project Syndicate is as insightful a critique as I've seen of the consensus that has emerged among policymakers that government deficits must be cut to restore economic growth.

Not that we haven't taken a stab at that ourselves.

But Skidelsky has authored a biography of Keynes, so he knows the economics here a whole lot better than we do and can put them into language that strikes much closer to home.

The writer, who also happens to be a [...]

Punish shareholders for managers' sins? By all means

ronaldfink6@gmail.com — Mon, 16 Aug 2010 23:00:00 +0100

Barry Ritholtz today usefully repeats a point he made earlier this month in connection with an Andrew Ross Sorkin column about the SEC's proposed settlement with Citigroup and the court's refusal to go along with it.

And that is that shareholders of companies run by corrupt management are supposed to be punished.

I first heard complaints about the supposed paradox in holding shareholders of such companies responsible for the sins of managers in connection with the fr [...]

A welcome end to operating leases

ronaldfink6@gmail.com — Sun, 15 Aug 2010 23:00:00 +0100

I see that FASB is sticking to its schedule for ending most off-balance-sheet treatment for leases, and so is the IASB. It's about time, frankly, if only to spare us poor, I mean, intrepid financial journalists from having to sort through the particulars of the current accounting treatment a moment longer than necessary.

I speak from personal experience here, having wrestled with the false distinction between capital and operating leases for a sidebar to a piece I wrote fo [...]

Time to keep subsidizing home prices

ronaldfink6@gmail.com — Thu, 12 Aug 2010 23:00:00 +0100

I have to disagree with my colleague Steve Taub on this, not because my heart bleeds for jobless, underwater homeowners, but to keep foreclosures from driving home prices ever downward.

Here's the thing: What is the "natural" price that Steve wants the market to find?

I'd argue that there is none, or more precisely, that in the current environment, it will be impossible to distinguish that from a "fire sale" price. This conundrum is, in fact, the basis [...]

Why Tim Geithner should ignore the banks

ronaldfink6@gmail.com — Wed, 04 Aug 2010 23:00:00 +0100

Banks' arguments against stricter capital reserve requirements seem to be getting a hearing from regulators such as Tim Geithner and the Basel Committee, but a recent paper suggests they should not.

This was alluded to in a blog today by Simon Johnson over at the Baseline Scenario, but the relevant passages are worth reading.

The paper isn't authored by lightweights but by Samuel Hanson and Jeremy Stein of Harvard and Anil Kashyap of the University of Chicago.

Here& [...]

When confidence is merely a con

ronaldfink6@gmail.com — Tue, 03 Aug 2010 23:00:00 +0100

A column published on Tuesday by Project Syndicate sums up the world's flailing (if not downright cynical) response to the financial crisis in particularly apt terms, I'd say.

The governments' efforts to restore confidence in the banking sector without really addressing the causes of its loss of confidence is akin to trying to tickle oneself, observed Paul Seabright of the University of Toulouse in the piece, entitled "Financial History's False Lessons."

Why corporations may not care about the domestic economy

ronaldfink6@gmail.com — Mon, 02 Aug 2010 23:00:00 +0100

Paul Krugman today once again bemoans the lack of Keynesianism in what passes for economic policymaking discussions these days, and I share that complaint.

However, Krugman may be missing part of the problem here, which is that those who pooh-pooh the prospect of deflation may actually not much care if it materializes, though they would be mistaken to do so.

Yves Smith gets at this today in a post of her own in connection with a Robert Frank piece in the Wall Street Jou [...]

The battle to reform banks is far from over

ronaldfink6@gmail.com — Wed, 28 Jul 2010 23:00:00 +0100

Anyone who thinks the financial reform bill is all that was necessary to finish fixing the banking system needs to read a couple of pieces published in recent days.

As Simon Johnson points out over at Baseline Scenario, a new paper by several respected academics shows that the stiffer capital requirements that the Obama administration is focused are not only easily gamed, but can have major unintended consequences, and these can amount a repeat of the systemic crisis we saw two years ag [...]

Time to reread Keynes

ronaldfink6@gmail.com — Mon, 26 Jul 2010 23:00:00 +0100

I've avoided rehearsing the on-going debate over the bleak macroeconomic picture, because it quickly descends into endless political back and forth along with the usual name-calling, as my colleague Steve Taub and I have been discussing internally today. But it's time to make an exception:

Is the private sector not hiring because it fears more aggressive action from the public sector, and so the public sector (read Obama administration) should leave the economy to itself [...]

Let your supplier lean on you for payment?

ronaldfink6@gmail.com — Mon, 19 Jul 2010 23:00:00 +0100

Our editorial partner, the Benche.com has an interesting item up on how companies can help their suppliers without tying up working capital. The trick involves the customer leveraging its stronger credit rating to finance the payment of suppliers' invoices.

While that is hardly a novel concept, I haven't seen it expressed in terms of its potential impact on working capital before.

As Niclas Osmund and Lars Hagne of the Swedish bank SEB explain, supplier fina [...]

Why companies aren't spending

ronaldfink6@gmail.com — Wed, 07 Jul 2010 23:00:00 +0100

There's a political debate heating up about companies' hesitancy to invest the cash they're sitting on.

Essentially, the Democrats--or at least those in favor of further government stimulus measures such as a jobs program or at least extended unemployment benefits--argue that companies are wary of spending because of the lack of aggregate consumer demand.

The GOP--or those in the party who oppose stimulus in favor of austerity or at least tax cuts--prefer to explain th [...]

The financial crisis is only "on pause"

ronaldfink6@gmail.com — Tue, 06 Jul 2010 23:00:00 +0100

There's some additional recent work out there that's worth citing in connection with Karen's post on Tuesday.

In particular, I would point readers to the piece posted Monday on voxeu.org by Enrico Perotti, a finance professor at the Amsterdam Business School. Essentially, Perotti's piece explains why Kotlikoff's prescription is necessary. As it did the US Congress, the banking industry has fought off international attempts to get the so-called Basel Committee to force the indust [...]

AIG vs. Goldman reveals the flaw in financial reform

ronaldfink6@gmail.com — Wed, 30 Jun 2010 23:00:00 +0100

The latest revelations concerning the dispute between AIG and Goldman over collateral show how weak the new financial reform package really is.

After all, Goldman's demands for collateral from AIG as it was failing ended up costing taxpayers billions of dollars. Yet according to the testimony today during the crisis panel's latest hearings, the whole question hinged on what constituted fair value.

To hear Goldman CFO David Viniar tell it, the Vampire Squid can [...]

Companies sitting on still more cash

ronaldfink6@gmail.com — Wed, 30 Jun 2010 23:00:00 +0100

A survey released today by the Association of Financial Professionals will do nothing to dampen the austerity versus stimulus debate.

To wit: Forty-three percent of US corporations had larger US cash and short-term investment holdings this May than they did six months earlier. Only 24 percent of respondents reported that their short-term holdings had shrunk during the past six months.

In a press release accompanying the findings, the AFP described finance executives [...]

Bad governance at root of crisis

ronaldfink6@gmail.com — Tue, 29 Jun 2010 23:00:00 +0100

Anyone counting on regulation alone to prevent the world from falling into another financial black hole will be sorely disappointed, a group of experts warned in an article published yesterday by the International Federation of Accountants.

The experts say that all key parties to the financial disaster--from regulators to managers and investors--share the blame and that tighter regulation alone can therefore go only so far to prevent another crisis from materializing.

& [...]