IMF Wants to Open the Books

By Fester:

According to Der Speigel, the IMF wants to open up the US financial system books and review the stress tests, algorithms and accounting methods used at all levels of the US economy. 

Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.

As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team. They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests -- worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar. [h/t the Boneheaded Compendium]

The US financial system has become disconnected with reality and the economy in general.  That could be tolerable if the US financial system was serving as a massive export for the US economy and rapidly expanding its market share within the global market, but it is actually shrinking compared to thirty years ago as new exchanges, burses, and investment banks open up and talents spread.  This disconnect is a potentially systemic risk to the global financial system. 

The question the IMF wants to be able to ask is "Can we trust the US's books?" 

Is the Federal Reserve looking at the right definition of inflation, and is it reporting it correctly?  Or do hedonic adjustments somehow make US inflation magically lower than Europe's despite a weakening dollar, lower interest rates and large current account deficits?

What the hell are Tier III assets and why should they be valued at what they are valued?

How are long run government obligations accounted for?  And how large are those potential obligations?

The IMF wants to conduct a full audit of the US financial system, and I would think that they'll find multiple red flags, lack of controls, and conflicts of interest when the audit is completed.  We will have sold our credibility for a song. 

 

Comments

[Ron Beasley]

They usually only do that to banana republics - Oh wait, the US is a banana republic now.