“We are all Japanese now”

Today’s quote of the day comes to us via Floyd Norris NYT column, High & Low Finance: Confronting High Risk and Banks.

The following refers to Congress browbeating FASB into changing its rules in March 2009:

“The purpose of financial reporting is to convey the results of the company. It is not to assure the company stays around.”

-Sandra Peters, the director of financial reporting for the CFA Institute, an investor advocacy group

The rule change has allowed banks to avoid disclosing bad investments, hide their losses, and generally avoid fair value accounting.  Instead, they get to use Mark-to-Make-Believe accounting.

Hence, why their has been no hurry to sell bad assets — they don’t really exist if you do not have to account for them on your balance sheet.

Economist Milton Friedman (or was it Richard Nixon?)  was referring to a different era when he said “We are all Keynesians now.”

Had either man been alive today, the quote would be quite different, reflecting the ugly reality bailed out zombie banks, of private profits but socialized losses. Instead, it should be thus: “We are all Japanese now.


Confronting High Risk and Banks
NYT, December 10, 2009

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