[dialogue]
A perspective on accounting
I appreciate very much your
thoughts and editorial regarding mark
to market accounting (Straight Talk,
Jan. 1, 2009). I taught Principles of
Accounting at the Wharton School so
I have some feeling for the accounting
function.
And I think our esteemed friend,
Mark Olson [chairman of the Puh-
lic Company Accounting Oversight
Board], has forgotten what it is like
to run a bank.
Years ago, the function of account-
ing was to present factual, verifiable,
data on asset and expense costs,
income received in accrual, dollar
amounts of liabilities, etc. Opinions,
judgments, market values were limit-
ed primarily to current assets - invest-
ments, receivables - and depreciation
and valuation reserves.
Then the Big 4, 5 or 8 decided that
they wanted to be financial consul-
tants as well until Washington put
the kibosh on that. So now FASB has
found another way to create make-
work, non-cost-effective accounting
requirements, which they think look
good in their ivory tower, but which
cost banks millions of dollars in pa-
perwork and fuss.
I respect former regulators William
Isaac and Eugene Ludwig who feel
that there still is a place for regula-
tory accounting, not just GAAP. And
why can't the market information,
which FASB wishes be disclosed, be
done in the footnotes for the analysts
to use?!
B. P. Allen, Jr., Chairman
First National Bank, Milaca, Minn.
Bailouts and 'Too Big To Fail'
TBTF started with Continental
(mistake) and has been expanded and
expanded to where we are now: any-
thing, anywhere and anytime. We are
on a slippery slope, an avalanche to-
ward actual or de facto nationalization
of banks and who knows what else.
The cost to Treasury (citizens)
could bring about major, unimagi-
nable, unstable and undeterminable
change in our heretofore successful
form of government, free-enterprise
system and high standard of living. All
U.S. citizens have a higher standard
of living than 90 percent of the rest
of the world. A significant number of
people want to come here to live. This
gigantic increase in the national debt
will encumber the country and likely
decrease the value of the dollar.
Many economists perceive TBTF
as bad economics. It rewards bad
management, discourages good man-
agement, increases moral risk, and if
not stopped, will be an unsustainable
drain on the Treasury. There has
been a lot of comment on the dangers,
risks, unintended consequences and
economic idiocy. (See Gary Stern's
"Top of the Ninth" column in the Sept.
2008 edition of The Region published
by the Federal Reserve Bank of Min-
neapolis.)
TBTF is not a good policy and
should go the way of the dodo bird.
But, even those opposed when faced
with the prospect of failing a TBTF
will, in effect, say "yes but not on my
watch." The solution to this malady is
to limit and reduce the size of TBTF
institutions that pose a systemic risk.
Stop the tail from wagging the dog.
The Fed has studies that show
economy of scale is mostly illusionary;
the primary beneficiary is often the
executives. One might compare them
to a farmer who wants to expand, not
much, just the land that adjoins his.
No matter what the limit, there will
always be pressure for more.
For the good of the country, the
obvious axiom is to limit the size of
any and all entities whose failure will
place a systemic risk on the entire
country. (In a free society, there will
always be some business failures.)
The direction we are headed in is
calamitous. Soundness would let them
Do you have an opinion you'd iike to siiare?
We're interested!
E-hnail letters to to Tony@NFRcom.com. Or, send a Fax to: (952) 835-2295.
fail; apparently this is not going to
take place. The sound and principled
policy is obvious. Limit the size so that
they cannot dominate the government.
(A consistent banking rule - do not
have a borrower so big he controls
the bank.)
The American Bankers Associa-
tion and the Independent Community
Bankers of America should stand on
principle; introduce and lobby for a
law (in banking where they have the
expertise) where no bank could be
allowed to have so many assets that
its demise would pose a risk to the
country. One percent of total national
deposits might be okay, if that is not
too high. Return to the states their
right to oversee the financial institu-
tions in their own state.
Some give the excuse (because they
do not want to take the high road) that
you cannot put the genie back in the
bottle. (Who let it out?) Look at Teddy
Roosevelt, he limited trusts.
Maybe it will be an uphill battle
against the megabanks and their
lobbyists. But, if it is better for the
country and the economy, it is never
wrong to stand on principle.
Either ABA or ICBA will take some
similar position or will do nothing,
which is a position saying let the risk
grow. We all know there will be a push
to raise the limit that will make banks
even more TBTF. This is not a solution;
it is suicide.
Next, some wild D.C. planner will
want to revive the Townsend Plan of
the 1930s.
Either stand on principle or say you
will not; in spite of the song, there is
no "Mr. In Between!"
John Dean, Chairman I CEO
Glenwood State Bank
Glenwood, Iowa
(TME FINANCIAL RUVII;W| 2.01.2009