Sunday, March 14, 2010

Balance Sheet Fictions

Wow. I never thought Enron would be matched or surpassed in terms of balance sheet gimmickry, but it seems that Lehman accomplished just that according to the court-ordered report on Lehman's demise. Dylan Ratigan does a great job explaining how Lehman accomplished this feat:

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Along these lines, Frank Partnoy makes the case that financial firms still doctor up their balance sheets--though not as deceptively as Lehman or Enron--primarily by use of off-balance sheet accounting tricks. These "balance sheet fictions" as he calls them were an important part of the financial crisis (e.g. SIVs) and he wants them to be addressed by financial reform legislation too. Partnoy argues that unless the abuse of off-balance sheet accounting gets included, financial reform will not work. Here is a short video clip where he explains his concerns.

2 comments:

  1. While some truth to this video, it is filled with typical MSNBC and Radigan populist rhetoric and distortion..... very misleading...

    Regards,
    Michael

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  2. The problem is that very few people, especially those in the media, understand the basics of the balance sheet. If the financial press were more astute on the basics of financial accounting I think a lot of these accounting irregularities would be uncovered as the scams they really are.

    The most depressing part of this piece is that Ernst apparently knew what was going on and looked the other way. Sooner or later the public is going to reach the conclusion that there is no difference between the amoral CEO's willing to do anything to meet quarterly earnings expectations and the CPA's that are supposed to be auditing them.

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