Former SEC Chair Arthur Levitt testified before the Senate Banking Committee on October 16 and heaped a good bit of blame on the SEC for failing to carry out its oversight responsibilities responsibly. According to Levitt, the SEC should have paid much more attention to the riskiness of the various exotic derivatives based on mortgage loans, though it was hindered by lack of resources and staffing to do the job that needed to be done. Levitt claimed that "just when the markets needed more transparency, the SEC allowed opacity to reign." See Senate Banking Committee: the Genesis of the Economic Crisis, InjuryBoard.com, Oct. 16, 2008
As to the current efforts by various regulated entities to get the SEC to suspend the requirement for mark-to-market accounting, Levitt would have none of it. Instead, he proposed that fair value accounting be expanded to cover all financial instruments--securities positions and loan commitments--of financial institutions. That would provide a truer picture of their situation, and might even have helped derail the crisis before it reached harmful proportions. That's because fair value accounting requires a close look at the risks in order to assess value.
According to Levitt, “If institutions were accurately marking the books, they would have seen the problems they were experiencing months in advance and could have made the necessary adjustments, and we could have avoided the current crisis." Levitt Tells Senate to Expand Fair Value Accounting, WebcPA.com, Oct. 16, 2008.
A substantial excerpt from Levitt's prepared statement at the hearing is available at Arthur Levitt: How the SEC Fell Short, U.S. News & World Report, Oct. 16, 2008.
Comments