Accounting Theory

Finance a la shmoop what is reg G? wasn't he one of the Archies friends and

maybe that was Reggie..... okay so reg G or Regulation G is all

about disclosure largely as it relates to relationships that banks holding [Dollar notes appear]

companies and savings and loans have with NGOs or nongovernmental

organizations or institutions well the key driver of reg G revolves [Man picks up folder of reg G]

around the opacity of bank filings as they relate to risk and exposure in

volatile times the obvious backdrop here was the mortgage crisis of 08/09

with a goal of having that you know never happen again part of the issue was

that a number of the banking terms were so complex that there wasn't a [Stack of banking term documents appear]

pre-existing GAAP or generally accepted accounting principle measure for a way to even

talk about things so complex as banking derivatives risk what does that mean?

well Bank A is hedging its mortgage exposure because it believes that

housing starts are a good proxy for the health of the economy so they get an

investment bank to create a liquid index against which they can be short or long

with leverage and with derivatives believing that these hedges will in fact [Hedges attach to frankenstein monster]

give them life under dire situations like that mortgage crisis well in fact

many of these hedges became so complex and relied on non-GAAP terms like EBITDA

which is not a GAAP term where clever accountants can more or less make up [Accountaint appears at yummy fudge inc]

whatever they want the numbers to be such that Regulation G now put the

burden of clear disclosure on the affecting bank or institution and that's

a big deal because even the experts even the top top experts when the banking

crisis you know hit the fan well even they couldn't explain the derivatives [Banking expert throws paper away]

behind the theoretical hedges the banks were using and while this country almost

went bankrupt in the process all right so the basic idea is that if there was

ever a problem the judge about to put management in jail didn't need a PhD in [Certificate of accounting PhD torn up]

accounting to figure out or be able to trace the logic of whatever filings were

made and whatever derivative and hedging and all the other crapola that the banks

did to hide that they were trying to find clever accounting ways to make

money rather than the old-fashioned way of just selling

good mortgages to honest people who actually pay off the debts they promise

to pay so when you think reg G think gee whiz I actually understand what the hell [Reggie discussing Reg G]

these banks are talking about