Francine McKenna is shocked that investigations in the UK have revealed that major auditors were told to make wobbly banks look healthier than they were. Specifically, they issue “going concern” opinions because they were told the banks would be backstopped.
One can only assume the accountants were brought in the loop with the aim of influencing their published reports. And one must further assume that anyone who dared to ask reasonable questions (“How can you be certain bailouts will go through when they’ve become controversial?”), they would have been told a tad more directly that they ought to take it as a given that the rescues would take place (although I doubt anyone would have needed to be direct, the auditors would presumably be delighted to issue opinions that would keep major meal tickets in good favor with the financial markets). From McKenna (hat tip Richard Smith, emphasis hers):
Leaders of the four largest global accounting firms – Ian Powell, chairman of PwC UK, John Connolly, Senior Partner and Chief Executive of Deloitte’s UK firm and Global MD of its international firm, John Griffith-Jones, Chairman of KPMG’s Europe, Middle East and Africa region and Chairman of KPMG UK, and Scott Halliday, UK & Ireland Managing Partner for Ernst & Young – appeared before the UK’s House of Lords Economic Affairs Committee yesterday to discuss competition and their role in the financial crisis….
The Lord’s Committee was more interested in questioning the auditors about the issue of “going concern” opinions and, in particular, why there were none for the banks that failed, were bailed out, or were nationalized.
The answer the Lord’s received was, in one word, “Astonishing!”
Accountancy Age, November 23, 2010: Debate focused on the use of “going concern” guidance, issued by auditors if they believe a company will survive the next year. Auditors said they did not change their going concern guidance because they were told the government would bail out the banks.
“Going concern [means] that a business can pay its debts as they fall due. You meant something thing quite different, you meant that the government would dip into its pockets and give the company money and then it can pay it debts and you gave an unqualified report on that basis,” Lipsey said.
Lord Lawson said there was a “threat to solvency” for UK banks which was not reflected in the auditors’ reports.
“I find that absolutely astonishing, absolutely astonishing. It seems to me that you are saying that you noticed they were on very thin ice but you were completely relaxed about it because you knew there would be support, in other words, the taxpayer would support them,” he said.
I’m about as shocked to read this as learning that there is gambling in Casablanca. But what is more interesting is seeing that the UK, despite having a banking sector that is bigger in terms of GDP than the US, and hence presumably more powerful, still has processes in place that allow this sort of thing to become public.
By contrast, as McKenna correctly points out, we’ve had no such revelations in the US. She wonders whether accountants here got similar
orders guidance from the officialdom. I find it hard to believe they didn’t, given that the Paulson-Bernanke-Geithner troika was working far more fist in glove with the financial services industry than their counterparts in the UK. In addition, it was clear from the outset of the Obama administration that they had decided to cast their lot with the banksters.
Even with the will to turn over some rocks, given the ritualization of Congressional hearings (it isn’t hard for witnesses to obfuscate and run out the clock), I doubt we’d see this sort of
dirt information come out. Audit the Fed, one avenue that might have shed some light, was watered down to a data dump of credit extended during the crisis. That’s better than nothing, but vastly short of understanding what was done and why at crucial junctures during the crisis.
This episode is a sad reminder that we only have the form of government in the name of the collective interest in the US. The dirty laundry of the banking industry and its enablers among the powers that be is treated as a state secret, on the same level as military intelligence. Dubious rationales like “trade secrets, personnel rules and practices, memos subject to attorney-client privilege and violations of personal privacy” are served up as excuses for failures to provide citizens with disclosures they fully deserve.
Until the public faces up to the ugly changes that have taken place, we will remain in their thrall. From the close of ECONNED:
That brings us to a final outcome of this debacle. A radical campaign to reshape popular opinion recognized the seductive potential of the appealing phrase “free markets.” Powerful business interests, largely captive regulators and officials, and a lapdog media took up this amorphous, malleable idea and made it a Trojan horse for a three-decade-long campaign to tear down the rules that constrained the finance sector. The result has been a massive transfer of wealth, with its centerpiece the greatest theft from the public purse in history. This campaign has been far too consistent and calculated to brand it with the traditional label, “spin”. This manipulation of public perception can only be called propaganda. Only when we, the public, are able to call the underlying realities by their proper names — extortion, capture, looting, propaganda — can we begin to root them out.