Where to for oversight?

• Tweet

• Tweet

As I scan the various world media, the lines from Hamlet Act V keep ringing in my head:

Alas, poor Yorick! I knew him, Horatio; a fellow of infinite jest, of most excellent fancy; he hath borne me on his back a thousand times; and now, how abhorred in my imagination it is! My gorge rises at it. Here hung those lips that I have kissed I know not how oft. Where be your gibes now? (Hamlet, V.i)

Depending on who taught you English, those lines are often interpreted as a lament to the dead. It seems somehow appropriate as we see the unfolding of a new era of regulation, underlined by the words of the complaint in the ciminal case against Madoff’s auditor:

So the claim is there was no discernible audit. I suppose one could argue the same regarding PwC India’s handling of Satyam, or something similar in regard to the shell game played around Barclays tax wheezes. It all amounts to the same thing: lawyers, bankers, business and audit all in a not so discrete dance that sees transactions appear, disappear, re-appear and magically become transformed into something that’s beautiful to management and who can then pocket contracted bonuses while bowing to the applause of the institutional investor crowd. Unfortunately, these ‘results’ are often predicated on a fantasy dreamed up by those who would wish to pay no tax and others who wish to remain unaccountable. A glorious circle jerk.

So now we come to a crossroads. In the US, Congress thunders at AIG’s Liddy, the poor schmuck who has to somehow prevent AIG from imploding. Revenge is in the air. Unlike the lynchings of the past it will come through lawsuits. Or perhaps through civil disobedience. Or both.

On this side of The Pond, the near-as-dammit ineffectual FSA comes up with an international plan for banking oversight. Grand gestures doth not a change make, especially when we’re talking about national interest becoming ensnared in the affairs of private business.

What’s interesting in the FT commentary (subscription required) is the way compensation is relegated as a side issue and a nod to the continuance – albeit on a smaller scale – of high risk activities:

The FSA has done well to warn hotheads against the superficial appeal of barring “utility” banks from “investment banking” activities: large, complex banks spanning a wide range of activities must remain a feature of a globalised trading and financial system. Given the political hysteria over pay, its statement that poorly structured bonuses were “considerably less important” in provoking the crisis than inadequate approaches to capital, accounting and liquidity is commendably honest. Targeting pay excesses indirectly is also sensible. The stiff increase in capital required for trading activity will do more to moderate pay than micromanaging remuneration ever will.

Maybe. I initially trained at what you’d today call an investment bank. In those days, liquidity cover was sacred. We reported monthly and had to ensure that we were not window dressing. Not that I ever saw an auditor peering over our shoulders but because it was the right thing to do. It would be unrealistic to presume that we might return to those days. But we can right the wrongs of the past and in so doing reshape what it means to be a professional.

We’re bound to see measures proposed in extremis but they will do little to bring about the fundamental changes needed to bring back confidence. As the WSJ opines:

The problem with desperate measures: They can end up stoking fear, not confidence.

The problem is that these are desperate times. It is good therefore to see Bill Sheridan sounding the warning bell on what happens next to mark to market:

In my mind, accounting is all about transparency and accuracy, and those things are not subject to speculation. We don’t just change the numbers because we don’t like them.

But what lawmakers and regulators seem to be saying is this: We’re willing to do anything to get people investing again.

Anything? Are you willing to cook the books? Sell your souls? Tell people that something is worth more than its market value? Because by insisting on these changes, that’s what it sounds like you’re doing.

We need more professional voices with Bill’s courage. We need the twin voices of reason and integrity. Not the pandering that seems to taint so much of what is currently mooted. Where are you?

Complaint image courtesy of Paul Kedrosky

Related articles by Zemanta

• Stocks in the news: AIG, Barclays, Discover Financial (dailyfinance.com)
• Revenue investigates Barclays tax mole claims (guardian.co.uk)
• Darling tax avoidance banks crackdown (guardian.co.uk)
• Barclays does the near impossible but questions remain (telegraph.co.uk)
• Financial Regulations-Becker (becker-posner-blog.com)
• Auditors expected to give banks clean bill of health (telegraph.co.uk)

Tagged as: accountability, AIG, Audit, Barclays plc, Financial services, Investment Banks, Paul Kedrosky