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Roundup on Paulson Proposal

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Finally people are starting to get it: transparent accounting policies benefit companies, industries, and markets. This is especially prevalent regarding Treasury Secretary Paulson’s proposal yesterday, which called for less transparency and more of the behind-the-doors regulatory style that aided in the rise of the current situation in the financials.

Barry Ritholtz pulls together a variety of sources in his analysis, but is write on point, saying:

In order to avoid these issues in the future, depository banks and investment banks need full and transparent reporting of their holdings. No more side pockets, off-the-book SIVs, or buried derivative exposures. In fact,they should also clearly report the potential losses they have on their books via exposure to leveraged and risky counter-parties as well.

As you might recall, SIVs (structured investment vehicles) are another version of the SPEs (special purpose entities) popularized in the downfall of Enron. They are used by firms to move sketchy practices off the financial statements.

Ritholtz continues, saying the current environment (following a period of heavy regulation) is at “when the cat is away…” situation, with little or no substantive regulation. Believing they need less than a responsible regulatory environment and also not learning from lessons we garnered from other financial crises (i.e. Savings & Loans in the 1980s) are not wise.

Other articles of interest:

  • Naomi Prins calls Paulson’s proposal a Band-Aid via the Slate.
  • Investor’s Business Daily‘s editorial board believe the proposal is more sweeping, but it concerns them in its lack of transparency.
  • Susan Antilla, writing at Bloomberg.com, says the Treasury’s proposed “big historical change is such a gift to Wall Street that its leaders can barely contain their glee.”
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Written by walonline

April 1, 2008 at 9:41 am

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