What the G20 really said

The title link is to the text of the G20 Declaration on sound financial markets. The G20 had been urged to make financial stability a goal of the IASB, but funked it. Instead G20 said

With a view toward promoting financial stability, the governance of the international accounting standard setting body should be further enhanced, including by undertaking a review of its membership, in particular in order to ensure transparency, accountability, and an appropriate relationship between this independent body and the relevant authorities.'

Which seems to mean that the IASB had better make itself accountable to regulatory authorities such as the EU and the SEC. It is to hoped this will help the IASB ground itself in reality rather more than its wilder flights of fancy about fair values suggest that it is currently grounded.

Credit Crunch Humour

Here is a selection of current internet humour ...


Q. What's the capital of Iceland?

A. About £3.50.

Q. How do you define optimism?

A. A banker who irons five shirts on a Sunday.

Q. Why have estate agents stopped looking out of the window in the morning?

A. Because otherwise they'd have nothing to do in the afternoon.

Q. What's the difference between an investment banker and a large pizza?

A. The pizza can still feed a family of four.



As a surprise, a chief exec's wife pops by his office. She finds him in an unorthodox position, with his secretary sitting in his lap. Without hesitation, he starts dictating: '. . . and in conclusion, gentlemen, credit crunch or no credit crunch, I cannot continue to operate this office with just one chair.

Q. What's the difference between a merchant bank and Katie Price?
A. Both are institutions whose reputation is built on assets that, on closer inspection, turn out to be entirely artificial, vastly over-inflated and in danger of going through the floor at any moment. But at least Katie Price is still worth something.

Q. What's the difference between an investment banker and a pigeon?

A. The pigeon is still capable of leaving a deposit on a new Ferrari.


A lobbyist on his way home from Parliament is stuck in traffic. Noticing a police officer, he winds down his window and asks: 'What's the hold-up?' The policeman replies: 'A group of bankers are so depressed they've stopped the traffic and are threatening to douse themselves with petrol and set themselves on fire. 'They say they are bankrupt and no one believes we can get through the credit crunch. So we're taking up a collection for them.' The lobbyist asks: 'How much have you got so far?' The officer replies: 'About 40 gallons, but a lot of people are still siphoning.'

The credit crunch has helped me get back on my feet. The car's been repossessed.

Latest news: The Isle of Dogs bank has collapsed. They've called in the retrievers.

Q. What do you say to a hedge fund manager who can't sell anything?
A. Quarter-pounder with fries, please.

Bradford & Bingley employees are concerned they were given no notice of the takeover by Santander Bank.
A Government spokesman said: 'No one expected the Spanish acquisition.'

You know it's a credit crunch when...
* The cashpoint asks if you can spare any change.
* There's a 'buy one, get one free' offer - on banks.
* The Inland Revenue is offering a 25 per cent discount for cash-payers.
* Gordon Brown has stopped chewing his nails and started sucking his thumb.
* Your builder asks to be paid in Zimbabwean dollars rather than sterling.
* Highgrove has been repossessed.
* Victoria Beckham is pictured shopping in Primark.
* Alistair Darling's eyebrows have turned white.

With acknowledgements to Andy Thorpe, the man who made cow flatulence newsworthy.

As predicted, auditors now being sued for bank collapse

An earlier post suggested that one of the reasons the big firms of accountants are desperate to maintain the legitimacy of fair value accounting is the likelihood of being sued as a result of financial collapses. News in the title link that the process has started.

If there is official acknowledgement that fair value accounting promoted risky behaviour by banks, then it will be a lot harder for auditors to defend allegations that their financial statements were misleading, or that they were negligent in assessing whether clients were going-concerns.

Stand by for a rush of going concern qualifications on the financial statements of financial institutions.

Procyclical Accounting

Following up on my post labelled 'the most hated accountant in the world'[1], if you stick with the videos of the interview with Sir David, near the end of part 3 of the interview he admits that regulating banks on the basis of financial statements 'would be pro-cyclical', and another way needs to be found. As I understand it, banks have been regulated on the basis of financial reporting so this amounts to an admission that accounting in its current form, ie using fair values, is promoting cyclical behaviour, which is another way of saying causing financial instability. Since the remit of IASB includes some general economic objectives, as well as providing information for financial decisions, it would appear that current standards are not meeting those objectives.

[1] Sir David styled himself thus after debate on the IASB's pensions standard, which has itself contributed to a certain amount of financial misery and transfer of risk to those least able to bear it, pensioners, as well as having its own procyclical effects.

Financial Stability

To understand what is going on in standard setting at the moment seems to require an advanced knowledge of the politics of both accounting and the EU. According to Accountancy Age (see title link) the world's top 20 nations discussed the internal politics of accounting at their recent summit. It is not surprising that they fudged the issue. The French, in their rational, Gallic way, were pressing that the IASB should set accounting standards taking into account financial stability. The Americans and Brits and the IASB, it seems, wanted to avoid that and there was the usual talk about 'transparency', as if it wasn't possible to both disclose the values of assets at the same time as incorporating a value in the financial statements that would promote stability - ie a prudent one. The conclusion was that the IASB would promote stability via a review of its governance. How changing the governance will change the standards set is a bit of a mystery.

Humour 111

Cartoons on the credit crunch.

Where do we go from here?

Bill Mott muses on three possible outcomes for the economy.

A Nobel Laureate speaks ...

The title link is to an MP3 of Joseph Stiglitz discussing the credit crunch. Most of the talk is general economics, but is a welcome refresher to the basic economics underlying the current situation.

Crunch explained

In a very readable Guardian article, John Lanchester explains the crunch and asks whether our view of the markets can ever be the same again.

"The most hated accountant in the world?"

The title link is to a video interview with Sir David Tweedie, chair of the IASB. Sir David is his usual engaging self, but steadfastly avoids admitting that mark-to-market accounting may have had something to do with the current crisis. The nearest he gets is to suggest that accounting in its current form may not be usable as a way of regulating bank lending. To me, this suggests that, if it can't be used for this purpose, it's not portraying the reality Sir David is so keen on.

Winding up Lehman Brothers

This article (click on the title link) by Jennifer Hughes in the FT magazine is a fascinating account of what the accountants did when the took over Lehman Bros after it became insolvent. It's rare to come across well written and interesting pieces about the work of accountants. This is definitely one of them.

More Humour

Obama's journey to the White House in biblical style.

PWC voted 'employer of the year'

I suppose it all depends on what you want out of life, or perhaps things have changed from when TG was a lad. Auditing in some dismal location in East London for £1200 a year was not my idea of fun.

More seriously, there probably isn't a better introduction to the business world than training with a large firm of accountants.

How long is your arm?

The government has announced that its investments in banks will be administered through a new company UKFI that will manage them on an 'arms-length' basis. Two questions arise: 'Can the management really be independent of the influence of government?' and 'Do we want the management to be independent of government'. The answer to both questions seems to be, 'Not really'. It's doubtful if UKFI will operate like an independent bank and allow its investment companies to pursue the same kinds of policies that they once did. That's probably a good thing. It would be nice to see the banks run in a manner that the general public would find acceptable ie sticking to the knitting of sound commercial banking, largely lending on the basis of the deposits they receive and paying their staff the kinds of salaries that members of the general public think are adequate for 'indoor work with no heavy lifting'[1].

[1]I'm indebted to the books of Terry Pratchett for the formulation.

Corporate Law and Governance Blog

I've added a link in the sidebar to a blog by Robert Goddard at Aston University where he records developments in corporate law and governance. Thanks to Robert for providing a most useful resource.