{"id":189687,"date":"2010-02-23T08:34:00","date_gmt":"2010-02-23T13:34:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2010\/02\/23\/quote-of-the-day-250\/"},"modified":"2010-02-23T08:34:00","modified_gmt":"2010-02-23T13:34:00","slug":"quote-of-the-day-250","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2010\/02\/23\/quote-of-the-day-250\/","title":{"rendered":"Quote of the Day"},"content":{"rendered":"<p>Roger Ehrenberg, looks at a number of financial transactions, including the rather mundane one known as leasing <a href=\"http:\/\/www.informationarbitrage.com\/2010\/02\/are-derivatives-the-real-problem.html\">nails what should be the core of any reform of the financial markets<\/a>:<\/p>\n<blockquote style=\"color: rgb(0, 0, 153);\"><p>Both cash-market and derivative instruments should be put to the \u201cbusiness purpose\u201d test. Accounting rule-makers, with support of the SEC, should move towards a \u201cprinciples-based\u201d system where common sense, and not black-and-white rules around which myriad loopholes can be found, should become the new paradigm. But let\u2019s be clear. The issue isn\u2019t derivatives; <span style=\"font-weight: bold;\">it\u2019s all financial transactions whose objective is to deceive or to weaken financial transparency<\/span>.<\/p><\/blockquote>\n<p>(<span style=\"font-style: italic;\">emphasis mine<\/span>)<\/p>\n<p>He notes that a <span style=\"font-weight: bold;\">very<\/span> old transaction, leasing, has been used for the same purpose for years:<\/p>\n<blockquote><p><span style=\"color: rgb(0, 0, 153);\">Consider leasing, a transaction that has been popular for over 50 years. As the industry has evolved, transactions such as sale\/leasebacks and \u201casset defeasance\u201d have been used to synthetically borrow money without the obligation being reflected as debt on the balance sheet. The form of the transaction: a lease. The substance of the transaction: a borrowing.<\/span><span style=\"color: rgb(0, 0, 153);\">  <\/span><span style=\"color: rgb(0, 0, 153);\">The multi-trillion dollar securitization industry has the same motivation: moving assets (and liabilities) off the balance sheet, while economic recourse still exists should asset values and\/or debt ratings drop. This is what the market discovered when Citigroup\u2019s multi-billion structured investment vehicles (SIVs) began to fail and the assets and liabilities came back onto its financial statements. What is the proper characterization of a contractually obligated stream of payments? Debt. How should a portfolio of assets and associated liabilities be treated if the risks and rewards of ownership haven\u2019t been completely transferred? As never having left the balance sheet. Yet the accounting profession, with the SEC\u2019s support, has enabled this charade to continue.<\/span><\/p><\/blockquote>\n<p>The idea of a business purpose rule is a <span style=\"font-weight: bold;\">very<\/span> good one.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Roger Ehrenberg, looks at a number of financial transactions, including the rather mundane one known as leasing nails what should be the core of any reform of the financial markets: Both cash-market and derivative instruments should be put to the \u201cbusiness purpose\u201d test. Accounting rule-makers, with support of the SEC, should move towards a \u201cprinciples-based\u201d &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[970,1004,1002],"tags":[],"class_list":["post-189687","post","type-post","status-publish","format-standard","hentry","category-corruption","category-finance","category-good-writing"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/189687"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=189687"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/189687\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=189687"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=189687"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=189687"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}