"Accounting should no longer represent the truth"

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This is simply insane.


Transparency Isn't Always a Good Thing, Barnier Says

Michel Barnier, the new European Commissioner responsible for financial market regulation, said something in a recent speech that is quite remarkable for its honesty.

The statement, said Andrew Hilton of the Centre for the Study of Financial Innovation in London, was "astonishing but only because somebody should be so blatant."

What did Mr. Barnier say? His speech revealed that the commissioner, who regularly emphasizes the need for transparency in financial markets, doesn't think that transparency is always a virtue. Transparency in company accounts, he suggested, can be bad.

Referring to coordination efforts among the Group of 20 leading economies, he said governments had agreed on "the shared commitment to … ensure convergence of accounting standards at an international level."

"To this end, we need to find the right balance between a faithful representation of a company's financial situation and wider financial stability," he added.

Mr. Barnier's suggestion is that it could be justifiable to misrepresent a company's financial position in the interests of a greater good: financial stability.

It isn't clear whether Mr. Barnier means that accounts should be sufficiently opaque all the time in case, in times of financial crisis, more truthful accounting would spook the markets.

Or whether that accounts should misrepresent a company's situation only sometimes, when being truthful would have consequences for the financial system. This latter would then raise questions about who would decide when these occasions were, and what would be the criteria used.

Mr. Barnier is bringing into the open an almost philosophical split over what accounts are for, an issue that divides the Anglo-American financial world from the continental European one, as this column has remarked before.

"There is a division between the British, who see accountancy as something neutral, and the continental Europeans who regard it as an aspect of broader economic policy," said Mr. Hilton. The statement of Mr. Barnier, who hails from the Rhône-Alpes region of southeastern France, suggests he is firmly in the latter camp.

Differing accounting treatments matter. Andy Haldane of the Bank of England said this month that U.K. bank assets in 2008 would have been £2 trillion, or around 30%, larger under European accounting standards than under U.S. ones. Differing standards make international comparisons difficult, which in turn "hinders investors' risk assessments and regulators' supervisory assessments."

The philosophical divide is at its widest over the question of how financial instruments should be valued, something Mr. Haldane pointed out could have been a life-or-death matter for some financial institutions during the recent crisis.

At its heart is the extent to which accounts for financial institutions should use the "fair value" of financial assets, valuations derived from market prices. In broad terms, the Anglo-Americans like fair value and the continental Europeans, or at least their governments, don't.

Even some Anglo-Americans think you can have too much of a good thing.

In his speech, Mr. Haldane argued that "now would be an unfortunate time to starve balance sheets of the sunlight provided by fair values. Blocking out the sun or, worse still, claiming it revolves around the earth will not serve banks or regulators well in the longer run."

But he added: "At the same time, it needs to be recognized that too much sunlight can scorch. That means applying appropriate filters to fair values, screening out their harmful rays."

One such filter, he said, could be for accounts to better capture "expected losses," meaning banks wouldn't have to wait until after loans had gone bad before they started to make provisions for them. The idea worries some investor groups because it suggests companies would be able to "smooth" profits to make them look better.

In a speech this week, the chairman of the International Accounting Standards Board, the body trying to bring the world's differing accounting regimes together, tried to square the circle between the different requirements of regulators and supervisors, on the one hand, and investors on the other.

Sir David Tweedie proposed threading this needle by suggesting accounts should provide regulators with additional information to meet prudential objectives "without compromising transparency." That appreciates that regulators might want different information from investors, but doesn't keep investors in the dark.

Sir David's emphasis on transparency is one of the reasons he is often criticized by French officials, who regard him as leaning too far to the Americans in his approach. His spokesman declined to respond to the issues raised in this column.

Chantal Hughes, Mr. Barnier's spokeswoman, said his statement was "not about hiding the value of something, it's about having a fair representation of the position of a company." For some banks, following market valuations too closely for loans being held to maturity would unnecessarily increase uncertainty.

Ms. Hughes said Mr. Barnier also wanted to ensure that accounting rules didn't amplify financial cycles.

Write to Stephen Fidler at stephen.fidler@wsj.com

Sometimes, I read the WSJ or the FT or even the Telegraph, and I feel like somebody must have slipped something really strong in the morning coffee.

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So if an investor is driving off a cliff in his car, their solution is not to let the investor see the cliff so he can turn his car, but to put blindfolds on him so he can't see the cliff?

Like the European war on speculation, they are trying to stop investors salvaging any value from a bad investment, and instead force him to keep his capital in a bad use until he loses everything. A sacrificial redistribution from investors to corporations.

The article writer got it spot on that it was a philosophical gulf between the two.

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Barnier is not the only one using anti-financial services hatred to pass some more freedom destruction.

Check out this petition: http://petitions.number10.gov.uk/TooPoorToExploit/

The more inefficient markets get, the more they can blame capitalism and gain more power and go further down the path of civilization destruction.

Good thing it is proven those people are evil: http://www.telegraph.co.uk/earth/7458105/L...ean-greens.html

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