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Sunday, June 19, 2011

Lawyers and Accountants Helped to Cause the Financial Crisis?

Financial reformers need to cast a wide net:

Lawyers and Accountants Once Put Integrity First, by Mark Everson,. Commentary, NY Times: ...It will take decades to fully untangle the causes of the 2008 financial crisis, but ... it would be prudent to ask whether lawyers and accountants offer the same protection against corporate misconduct that they once did.
Three or four decades ago, investors and regulators could rely on these professionals to provide a check on corporate risk-taking. ... To be sure, you lived well. But moving up the ladder, you didn’t expect to get rich. ... One’s stature derived from the respect accorded an independent professional. The mission ... was clear...: help clients adhere to professional standards and follow the law. Beyond that, do your best to differentiate your firm based on superior service.
Necessarily, the actions of outside professionals were guided by a cautious orientation. ... Recent decades have seen a new model take root: a business plan tied to partner earnings. Obviously, to pay employees more and to increase partner pay to its present, staggering levels, billings needed to grow. ...
Understandably, corporate clients are reluctant to pay through the nose for advice on how to color safely within the lines. ... Lawyers and accountants who were once the proud pillars of our financial system have become the happy architects of its circumvention. Nowhere is this more the case than in the world of tax law. ...
Just what role outside professional firms played in the genesis of the financial crisis has not been adequately explored. ... But at a minimum, we know that the widespread documentation problems associated with bank foreclosures demonstrate that in too many instances, attorneys and accountants abandoned their duties to assure integrity. Further, it seems unlikely that professionals will, of their own initiative, return ... to their traditional posts as vigilant sentries...
What should be done? ... Big businesses have always sought to gain competitive advantage over others and certainly to minimize taxes... Fair enough. But we have seen that globalization, business complexity and an unworkable tax code have obscured the understanding of risk. Politicians ... should look at all the moving parts in our financial system — starting with the outside professionals — not just Wall Street and Washington.

    Posted by on Sunday, June 19, 2011 at 12:06 AM in Economics, Financial System | Permalink  Comments (81)


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