Comments on: [2008] Finding a way through the Crisis

By: Pablo

Pablo — Fri, 17 Oct 2008 03:16:39 +0000

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….

By: Ben

Ben — Mon, 13 Oct 2008 11:06:21 +0000

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?

By: Ben

Ben — Sun, 12 Oct 2008 12:23:42 +0000

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.)

By: Ron Switzer

Ron Switzer — Fri, 10 Oct 2008 00:30:26 +0000

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.

By: UK Voter

UK Voter — Thu, 09 Oct 2008 08:24:44 +0000

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.