Back in March I reviewed a financial history book called Devil Take the Hindmost. In that post I listed how America 2008 was starting to look like Japan 1990. One of the items I mentioned was in regards to accounting.
2. Central bankers turned a blind eye to banks that wouldnt write down bad debt.
The Big Picture is reporting that FASB is delaying the Off-Balance Sheet Rule for a year. Ritholtz is a student of financial history and one of my financial mentors. He brilliantly states:
The longer they wait, the worse it ultimately will be. The long Japanese Recession (1989-2003) was caused by precisely this refusal to take the markdown, and engage in all manner of delays, excuses, procrastinations. Eee-diots — This only will make it worse!
When the people with capital to invest no longer trust the accounting, they withhold further investment. Without new investment you aren’t going to pull out of a recession.
One of the reasons America has always been an economic superpower is because we’ve always held a high standard when it comes to accounting and protecting the interest of investors. We make mistakes, but those mistakes are recognized and ultimately fixed.
Today FASB stated that we know the books are cooked, but we are going to turn a blind eye. This is banana republic accounting. And it is one of the reasons I don’t hold a single long position in any stock right now.