Calls grow louder for international overview of U.S. markets

Heather Timmons & Katrin Bennhold | New Delhi/Paris | August 28

IHT - (Ian - he who has the gold makes the rules. That ain't the States anymore.)

Politicians, regulators and financial specialists outside the United States are seeking a role in oversight of American markets, banks and rating agencies in the wake of recent problems related to subprime mortgages.

Their argument is simple: The United States is exporting financial products, but losses to investors in other countries suggest that American regulators are not properly monitoring the products or alerting investors to the risks.

"We need an international approach, and the United States needs to be part of it," said Peter Bofinger, a member of the German government's economics advisory board and a professor at the University of Würzburg.

While regulators in the United States have not been receptive to the idea in the past, analysts said that Europe and Asia have more leverage this time around. Washington might have to yield if it wants to succeed in imposing bilateral regulations on state-owned investment funds from emerging economies.

"America depends on the rest of the world to finance its debt," Bofinger said. "If our institutions stopped buying their financial products, it would hurt."

Tina August 28, 2007 - 7:02pm

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( categories: News | Business | Economics )

High time, too

The US GAAP (generally accepted accounting procedures?) themselves are somewhat bogus. A study around 2000 found that from early 80s onward, every company in the S&P 500 overreported earnings by about 10%. Earnings are supposed to represent cashflow, time-shifted. That is, earnings should match cashflow, averaged over the years. They did not. Earnings averaged 10% above cashflow over the years. In every company in the S&P 500, by a very consistent 10% overstatement. This is because GAAP has too much "earnings management" fufu. For example, "Pooling of interests" mergers when a giant company buys a startup. Yeah, right.

Can someone here comment about European/Japanese accounting standard v.s. the US?

Forget it, Jake - it's AmnesiaTown

Tonsure Wimple August 29, 2007 - 3:13am

AIRC the earnings

AIRC the earnings overstatement went up to about 20% in the 90's. I don't recall seeing anynumbers for the 2000s.

Ian Welsh August 29, 2007 - 4:25am

GAAP is

"generally accepted accounting principles." If Wall Street analysts used GAAP, it might be different. They use their own constructions to tout stocks, and earnings management is usually with Wall Street's constructions.

But here the problem is more with the ratings agencies and with the issuers of the debt instruments and their disclosures. Structured debt instruments are much harder to figure out than stocks, so the problem is a thorny one, probably not one that a mere regulator is going to be able to solve easily.

The central banks are villains here, as well. They reflated the financial world with this garbage. They may be the ones who should oversee these instruments since they are now having to take some of them as collateral.

http://mauberly.blogspot.com/

mauberly August 29, 2007 - 8:42am

Caution: These Products May be Dangerous!

This is the U.S. equivalent of the Chinese dangerous product scandal. The U.S. in particular wants China to clean up its production process, install some oversight and adhere to international safety standards.

So why shouldn't China and anybody else who buys U.S. financial products want to see the ratings agencies put under international supervision, and the manufacturers exposed to some oversight?

Numerian August 29, 2007 - 8:46am

Who do you think would

be the best overseer? Bank regulators are usually behind the learning curve.

The central banks have the research abilities, but I don't trust Bernanke or his foreign colleagues.

Chinese debt is even more suspect than ours. You've got all sorts of private equity debt in Europe that could go bad. The Japanese got into all that trouble in 1997-1998; nobody minded the store there. I can't imagine Brazilian debt is all that clean. Argentina defaulted on some of its paper sometime ago.

Who you gonna call?

There are unregulated, uncharted financial disasters at many turns.

http://mauberly.blogspot.com/

mauberly August 29, 2007 - 9:15am

I Think They Would Accept More Domestic Regulation

Setting up an international regulatory scheme outside of the BIS and IOSCO would be difficult, and those organizations aren't regulators in the first place. So I assume the angst here is focused on poor regulation in the United States. In other words, it shouldn't be asking too much for the Wall Street funding machine to be controlled in the same way as banks, for the mortgage industry to be put under a federal regulator rather than 50 weak state regulators, and for the two ratings agencies to be given government oversight.

Numerian August 29, 2007 - 2:01pm

Makes sense.

http://mauberly.blogspot.com/

mauberly August 29, 2007 - 3:33pm

Chinese put lead paint in their toys

US Financial institutions paint their products with obfuscation.

Give me control over a nation's currency,
and I care not who makes its laws.
Mayer Amschel Rothschild
(1743 - 1812)

Joaquin August 29, 2007 - 9:53am

Bernanke's job-one is pacifying The Street....

never mind getting involved in much-needed regulatory reform concerning lack-of-transparency investment vehicles. That small slice of the US population - the ruling elite - whose wealth is tied up in the US equity markets may have wooed him over to their way of thinking, i.e., do a Greenspan, as another wild day on Wall Street was led by speculation that the Fed will indeed drop trous - sorry, the discount rate, and give the chancers and wide-boys their requisite stimulus in order to set the bulls running again. Aaaaarg.

_{“les Etats-unis, c’est le seul pays à être passé de la préhistoire à la décadence sans jamais connaitre la civilisation…”...Georges Clemenceau}

barrisj redux August 29, 2007 - 7:34pm

This is so true.

And you've wisely introduced a new rating for a debt instrument:

Aaaaarg.

http://mauberly.blogspot.com/

mauberly August 29, 2007 - 9:52pm

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Calls grow louder for international overview of U.S. markets

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