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Gold Pressure Is Near a Breaking Point
"During the past year, lack of trust in the validity of accounting records of banks and other financial institutions in the context of inadequate capital led to a massive hesitancy in lending to them. The result has been a freezing up of credit.... trust will eventually reemerge as investors dip hesitantly back into the marketplace. From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later. In either event, human nature being what it is, revival will come. It always has in this society governed by that remarkable document we call the Constitution of the United States."
Even if gold goes to $20K an ounce, if our world is to be safe to live in, our society must resolve the state of ignorance held by countless Greenspans who said: "During the past year, lack of trust in the validity of accounting records of banks and other financial institutions"
In fact "bank records" are not "accounting records." Accounting is a business strategy played subject to the rules of double-entry book-keeping. If banks today were using a proper double-entry bookkeeping framework of rules their "books" would be easily auditable and transparent. Greenspan's problem, and countless others, would disappear. .
Whatever happens to gold as the dollar fails will not take the place of society's need to return to a proper practice of double-entry bookkeeping.
Citigroup, Merrill Lynch, Citadel: Earnings Troubles All Around
"Tighten, don't loosen, accounting rules for financial institutions,"
Surely you know, sir, that the rules that accounting must follow are the 650 year old double-entry book-keeping framework of rules, no? If banks had been accounting to those rules the nation would not be where it is today.
"making them mark-to-market financial asset portfolios that specifically cannot be held on a long-term basis. Also clarify rules around consolidation of off-balance sheet vehicles,"
There is no legal 'off balance sheet vehicle.' A book-keeper's job is to administer contracts with transparency to all entities that are parties to the contract, and that surely includes stockholders. If a vehicle is placed off the balance sheet then any obligations an entity has to that vehicle's contract belongs on the entity's balance sheet. This is book-keeping 101, which is to identify an entity's boundaries of contractual obligations. aka "rights to ownership."
"forcing all but the most clearly dissociated entities to be recorded as on-balance sheet obligations."
There is no "all but." There is either a contractual obligation or there is not an obligation. All else is fudged books. Banks are failing because they are not doing their bookkeeping. An accountant is not a bookkeeper. Accounting and bookkeeping interests are as different as the baseball pitcher and the umpire who is calling balls and strikes.
We're in an Opacity Crisis
All that you hope to see in the way of transparency and control will return when business entities of every description return to a proper double-entry bookkeeping framework of rules. Such rules were customarily used by all business entities prior to computer software. The proper framework was never programmed into software. It will soon have to be because there is no other framework of rules that will get the present cultural collapse back on track and subject to the return to a constitutional government. The 650 year old double entry bookkeeping framework of rules supervised commercial trade since the middle ages. It is not only the de facto language of commercial trade. It is the only language of commercial trade.
If you wish to put my words to a test, find the best accountant you know. Ask him or her to define a debit versus a credit. Send me their answer and I will send you the proper definition. You will be quite surprised to learn how little accountants know about the double-entry framework of rules.
Can Capitalism Survive Its Latest Entanglement With Socialism?
How to Spend $700B and Actually Solve the Problem
Ramifications of Fannie, Freddie On The U.S. Budget [Housing Tracker]
Is There a Margin of Safety in Financials?
Corporate Fraud + Government Intervention = Bailout Nation
However, the story misses one important point. The 650 year old double entry bookkeeping framework of rules has never made it into software code. Our present monetary system has no control language with which we can reconstruct its misuse. Without a proper framework of rules, that monetary system resembles the national museum in Baghdad in 2003. When no one is there to guard the treasure the attitude becomes, "If we don't steal it someone else will."
Nobody will be convicted for these frauds because reconstruction the history of facts is impossible using today's financial data management systems. A proper bookkeeping is designed to record a reusable history. It's called "the audit trail." With an audit trail we could go back and reconstruct the facts in detail. Had we had that for the past 30 years, the problem, of course, would never have occurred because most of us only break the law when we are quite certain there is no accountable way to get caught.
The problem is worse today than it was yesterday, and it will be worse tomorrow. The pattern of decay will continue until we decide as a citizenry that an accounting audit trail, that had served commercial trade for 620 years, would make a good idea to return to as soon as we possibly can.
Short Sales: SEC Turns Back the Clock to 1931
Clock is Ticking for Banks With Asset Quality Issues (Part II)