Finance: What is Reg G?

What is reg G? No, it's not an up-and-coming rap star...though we know what our rapper name is now. Hit play to find out.

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Transcript

00:28

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

00:33

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

00:37

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

00:42

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

00:46

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

00:52

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

00:57

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

01:00

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

01:04

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

01:08

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

01:13

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

01:17

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

01:23

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

01:27

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

01:32

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

01:36

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

01:41

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

01:45

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

01:50

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

01:53

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

01:59

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

02:03

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

02:08

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

02:11

money rather than the old-fashioned way of just selling

02:13

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

02:18

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

02:23

these banks are talking about