I have been keeping a close eye on the news around the global credit crunch and associated market volatility and am alarmed at what the papers are telling me.
Am I to believe that the global economy is on a cliff edge and about to plunge us into a global recession not seen since the great depression? Is there hope that the US legislators can provide a solution? I certainly hope so, and as Mr Paulson, US Treasury Secretary, says this issue is “much too important to simply let fail”
The other issue that has caught my attention relates to climate change. Prof Garnaut says globally we must reduce carbon emissions by 25 per cent by 2020 although seems sceptical of the international community’s ability to pull this off.
The amateur economist in me suggests there is a direct relationship between finding solutions for our financial crisis and our ability to mitigate carbon emissions. On the one hand, the potential costs associated with the global meltdown, combined with lower economic activity in 2009, will put significant pressure on our ability to absorb the the economic costs of the proposed Emissions Trading Scheme. Just how can these be balanced? As Prof Garnaut says, “Financial crises are short term phenomena… Climate change is a long-term structural issue”
On the other hand, perhaps this is the golden opportunity for climate change issues to be embraced as an economic downturn should reduce the demand for oil and it’s price, giving some breathing space for economic recovery.
I think that doing nothing in both issues will result in even greater economic costs which we simply cannot ignore. My proposition is that we accountants should be in control – would it have happened under our watch? We can Think + Create the right solutions!
I am looking forward to CPA Congress for guidance and answers. There are several speakers speaking on these issues which for me should bring this into perspective. In particular:
Mark Vitner, Managing Director and Senior Economist, Wachovia Corporation (US)
Riding the tide of a US economic downturn – what impact will it have here?
Monday 13 October 9.00am – 9.50am
Bob Carr, Former Premier of NSW
NSW 2020 – can we sustain our growth?
Wednesday 15 October 8.30am – 9.20am
Ernst Ligteringen, Chief Executive, Global Reporting Initiative
Beyond the numbers – the value, challenge and future of non-financial reporting
Wednesday 15 October 5.30pm – 6.30pm
Brett Janissen, Executive Manager, Asia-Pacific Emissions trading Forum
Exploring the impact of emissions trading on the Australian economy
Monday 13 October 2.00pm – 3.00pm
I look forward to seeing you at Congress! Let me have your take on the current turmoil and the days ahead.
Ron Switzer FCPA
Director NSW Division
October 9, 2008 at 8:24 am |
I think that half the problem has been governments listening to accountants, so, I am sorry to say, I can’t agree with your suggestion.
October 10, 2008 at 12:30 am |
Perhaps they ‘heard but did not listen’. I suspect the voice of a professionally qualified CPA recommending caution may have been burried in the avalance of mortgage brokers, financial engineers, analysts, rating agencies, executives, directors, regulators, risk assessors, insurers and economists predominately seeking short term gain. Wise commercial prudence, the hallmark of a professional CPA, will stand the test of time.
October 12, 2008 at 12:23 pm |
I think today’s announcement by the Government about backing bank deposits and offshore lending was interesting. What I do wonder, though, is whether these announcements serve to enhance stability or, in fact, have the opposite effect and send danger signals to the market. As far as I could tell, depositors of Australian banks were not at risk of losing their funds and no doubt, if one were about to fail, the Government could’ve stepped in at the last moment anyway (a la Northern Rock). The Government has also said that these new insurances will come at a cost to the banks – but how happy will shareholders be to pay insurance for depositors’ funds that were already safe? (Perhaps the premium will only be token.)
October 13, 2008 at 11:06 am |
Sorry, just an amendment to my comment above: the depositors’ insurance appears to be free; it’s the term funding guarantees that will come at a cost to banks (presumably differentiated based on the underlying credit ratings of the banks and therefore their cost of funds in ‘normal’ market conditions).
Ron, as for your question as to whether or not the same situation would’ve occured if accountants had been in control, where you simply trying to spark debate? I don’t think an accounting qualification and professional membership are sufficient to prevent such a situation – greed, not imprudence, is the root cause of many of the issues. A re-run of a 2007 4 Corners episode about the sub-prime fiasco was shown on the ABC tonight. In that episode, one of the interviewees described the yield spread premiums that encouraged mortgage brokers to sell their clients sub-prime mortgages (in order to earn higher commissions), despite the fact the same mortgagees would’ve qualified for a (cheaper) prime loan. With mentally torporific (to paraphrase Paul Keating) consumers evidently in abundant supply and the brokers bearing none of the loss in the event of loan default, they quickly saw there was money for jam to be made.
Perhaps the brokers’ actions would contravene our Code of Ethics and thus you argue an ‘accountant’ wouldn’t have let this happen on their watch? If so, have the brokers’ accountants – who clearly would’ve understood what was happening – also transgressed, in your opinion?
October 17, 2008 at 3:16 am |
We must remember many people participated in this greedy process including accountants. Where were those accountants who were accounting for the sub-prime loans? Where were those accountants who were completing the books for the major financial institutions? We must also remember these firms were also audited by the major audit firms – A lot of the people who participated in the markets would either have an economics or accounting degree so what really happenend? Now is not the time to blame but to get on with restoring confidence in the world’s markets as it has a flow on effect to us all. Somehow we must have people believe in more than just money, money, money….