[Sayma-Discuss] Ralph Nader speaks my mind about accountants and the financial meltdown
freepolazzo at comcast.net
Tue Apr 14 14:04:10 EDT 2009
This note was one I sent to my students today and I felt that Friends might
also be interested in what I told them.
Ralph Nader has a blog that today stated what I had been saying in my
Intermediate Accounting class at Strayer University, last quarter. I was
upset that the accounting profession had done nothing to help prevent or
expose the “games” financial companies were creating with their numbers. I
was wondering when someone would notice that and this blog is the first time
anyone has openly criticized the whole profession. Not surprisingly, it
was Ralph Nader who spoke up.
This is a concern for all accountants, because if the profession losses
credibility, then the trust that is needed to transact business becomes
lessened and that hurts all businesses and thus all economies. It would be
similar to your power at home went out and now nothing works. You are in
the dark wondering what happened because there was no big wind or storm and
no sirens. Accountants have that much power because they are the people who
decide what is “real” in the profit and loss world.
So, we need to add bravery to the requirements of being an accountant.
You need to be more committed to telling the truth about the transactions
you are responsible for than you are about keeping your job or your
customer. Unless the rules about how companies can hire and fire their
auditors is not changed, I doubt we can expect people to “fall on their
numbers” for the good of all.
Ralph says it like it is. IMHO. It will be interesting to see if anyone
picks up on this story, or if it just dies a quiet death.
The timing of this story, on the day before deadline for filing U.S. Income
Taxes are due is not to be lost on any of us who might question the power of
numbers and how important the rule makers of the veracity of numbers have
PS: . People started calling the severely devalued assets the banks and
other lending institutions had purchased “Toxic”. From where I sit, it
appears that was a term that was made up to avoid the real discussion about
what those assets were: investments that went bad because they were based
on lies and deception and false assumptions. Reporters loved that word
“toxic” (say it slowly and see how your tongue just lets it explode out of
your month) and its use spread quickly. It was easy to understand. One
could almost see the trailer for the movie “Toxic Assets Attack New York”
with pictures of wall street crumbling before their toxicity. Like they
turned toxic all by themselves while they were in the vaults of the banks.
Or maybe they were aliens. We will never know because to look upon them
will turn anyone to stone. So, the mystery continues.
Posted by nimda <http://www.nader.org/index.php?/authors/2-nimda> in In
<http://www.nader.org/index.php?/archives/2111-CPAs-MIA.html> CPAs MIA
Where were the giant accounting firms, the CPAs, and the rest of the
accounting profession while the Wall Street towers of fraud, deception and
cover-ups were fracturing our economy, looting and draining trillions of
dollars of other peoples’ money?
This is the licensed profession that is paid to exercise independent
judgment with independent standards to give investors, pension funds, mutual
funds, and the rest of the financial world accurate descriptions of
corporate financial realities.
It is now obvious that the accountants collapsed their own skill, integrity
and self-respect faster and earlier than the collapse of Wall Street and the
corporate barons. The accountants—both external and internal—could have
blown the whistle on what Teddy Roosevelt called the “malefactors of great
The Big Four auditors knew what was going on with these complex, abstractly
structured finance instruments, these collateralized debt obligations (CDOs)
and other financial products too abstruse to label. They were on high alert
after early warning scandals involving Long Term Capital Management, Enron,
and others a decade or so ago.
These corporate casino capitalists used the latest tricks to cook the books
with many of the on-balance sheet or off-balance sheet structured investment
vehicles that metastasized big time in the first decade of this new century.
These big firms can’t excuse themselves for relying on conflicted rating
companies, like Moody’s or Standard & Poor, that gave triple-A ratings to
CDO tranches in return for big fees. Imagine the conflict. After all,
“prestigious” outside auditors were supposed to be on the inside incisively
examining the books and their footnotes, on which the rating firms
Let’s be specific with names. Carl Olson, chairman of the Fund for
Stockowners Rights wrote in the letters column of The New York Times
Magazine (January 28, 2009) that “PricewaterhouseCoopers O.K.’d AIG and
FreddieMac. Deloitte & Touche certified Merrill Lynch and Bear Stearns.
Ernst & Young vouched for Lehman Brothers and IndyMac Bank. KPMG assured
over Countrywide and Wachovia. These ‘Big Four’ C.P.A. firms apparently felt
they could act with impunity.”
“Undoubtedly they knew that the state boards of accountancy,” continued Mr.
Olson, “which granted them their licenses to audit, would not consider these
transgressions seriously. And they were right…Not one of them has taken up
any serious investigation of the misbehaving auditors of the recent debacle
“Misbehaving” is too kind a word. The “Big Four” destroyed their very reason
for being by their involvement in these and other boondoggles that have made
headlines and dragooned our federal government into bailing them out with
disbursements, loans and guarantees totaling trillions of dollars.
“Criminally negligent” is a better phrase for what these big accounting
firms got rich doing—which is to look the other way.
Holding accounting firms like these accountable is very difficult. It got
more difficult in 1995 when Congress passed a bill shielding them from
investor lawsuits charging that they “aided and abetted” fraudulent or
deceptive schemes by their corporate clients. Clinton vetoed the
legislation, but Senator Chris Dodd (D-CT) led the fight to over-ride the
Moreover, the under-funded and understaffed state boards of accountancy are
dominated by accountants and are beyond inaction. What can you expect?
As for the Securities and Exchange Commission (SEC), “asleep at the switch
for years” would be a charitable description of that now embarrassed agency
whose mission is to supposedly protect savers and shareholders. This agency
even missed the massive Madoff Ponzi scheme.
The question of accounting probity will not go away. In the past couple of
weeks, the non-profit Financial Accounting Standards Board (FASB)—assigned
to be the professional conscience of accountancy—buckled under overt
pressure from Congress and the banks. It loosened the mark-to-market
requirement to value assets at fair market value or what buyers are willing
This decision by the FASB is enforceable by the SEC and immediately “cheered
Wall Street” and pushed big bank stocks upward. Robert Willens, an
accounting analyst, estimated this change could boost earnings at some banks
by up to twenty percent. Voilà, just like that. Magic!
Overpricing depressed assets may make bank bosses happy, but not investors
or a former SEC Chairman, Arthur Levitt, who was “very disappointed” and
called the FASB decision “a step toward the kind of opaqueness that created
the economic problems that we’re enduring today.”
To show the deterioration in standards, banks tried to get the FASB and the
SEC in the 1980s to water down fair-value accounting during the savings and
loan failures. Then-SEC Chairman Richard Breeden refused outright. Not
Former SEC chief accountant, Lynn Turner, presently a reformer of his own
profession, supports mark-to-market or fair value accounting as part of
bringing all assets and liabilities, including credit derivatives, back on
the balance sheets of the financial firms. He wants regulation of the credit
rating agencies, mortgage originators and the perverse incentives that lead
to making bad loans. He even wants the SEC to review these new financial
products before they come to market, eliminating “hidden financing.”
Now comes the life insurance industry, buying up some small banks to qualify
for their own large federal bailouts for making bad, risky speculations.
The brilliant Joseph M. Belth, writing in his astute newsletter, the
Insurance Forum (May 2009), noted that life insurers are lobbying state
insurance departments to weaken statutory accounting rules so as to
“increase assets and/or decrease liabilities.” Some states have already
caved. Again, voilà, suddenly there is an increase in capital. Magic. Here
we go again.
Who among the brainy, head up accountants, in practice or in academia, will
join with Lynn Turner and rescue this demeaned, chronically rubber-stamping
“profession,” especially the “Big Four,” from its pathetic pretension for
which tens of millions of people are paying dearly?
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