Paul Volcker on the FASB Override Button... And Who Needs a Button When You Have a Baseball Bat?

pic credit: to dry for (um yeah)

I guess Paul Volcker isn't that evil after all. Well sort of.


A proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul A. Volcker, a former chairman of the Federal Reserve Board, said Monday.

Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule.

But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency. He voiced concern that rising political pressures on both sides of the Atlantic were endangering that independence.

In case you need a refresher on this terrible idea.

Economic Populist also saw what they tried to do there (this can't possibly go anywhere, can it?):

Now check out what the American Bankers Association says in testimony.

"A Systemic Risk Oversight Council could not possibly do its job if does not have oversight authority over accounting rulemaking," top bank lobbyist Ed Yingling testified before the committee on October 29. "This is a major deficiency in the draft legislation. Accounting policies are increasingly and profoundly influencing financial policy and the basic structure of our financial system. Thus, accounting standards must now be part of any systemic risk calculation. To do anything less creates the potential to undermine any action taken to address a systemic risk. The Financial Accounting Standards Board should continue to function as it does today, but it should no longer report only to the Securities and Exchange Commission (SEC). The SEC's view is simply too narrow. Accounting policies contributed to the crisis, as has now been well documented, and yet the SEC is not charged with considering systemic and structural effects."

Is this absurd? The idea of systemic risk oversight is to not allow companies to become so large and interconnected they can bring down the entire global economy, not assist them in cooking the books when it happens.

What this is about is mark-to-market accounting. Remember that? The FASB is independent. They set accounting standards. Yet they were pressured to change the rules when assets on the books blew up due to the housing bubble collapse. Remember worthless toxic assets? How financial institutions didn't want to recognize so many derivatives on the books were caca?

Who would be on this Board? Any CPAs? FASB is easily hit in the back of the knees with a baseball bat by the banking interests if they have to but at least they tend to function independently 95% of the time.

Call me crazy but I refuse to believe that FAS 157-e sits well in FASB's gut. I just can't see it. If you got punked like this for a Congressional parlor trick (think: circus minus the bread) would you sleep well at night?


[Paul] Kanjorski called James Kroeker, acting chief accountant for the Securities and Exchange Commission; Robert Herz, chairman of the Financial Accounting Standards Board; and Kevin Bailey, deputy comptroller for regulatory policy at the Office of the Comptroller of the Currency before his subcommittee.

"Unfortunately," Garrett told the regulators, "I believe that during the market turbulence over the last year, fair value or mark-to-market accounting has prevented investors and the general public alike from obtaining the true value of many financial institutions' balance sheets. This method of accounting has its merits when the market is functioning correctly, but it has significant downsides when the market is broken."


Who needs a FASB override button when Congress can call them to the front of the class and punk them into spitting out FAS 157-e? They spent the rest of the year going back and forth on fair value and not much else.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.