Book recommendation

The Long and the Short of it: A Guide to Finance and Investment for Normally Intelligent People Who Aren’t in the Industry
John Kay

Many friends over the years have asked me - ‘what can I read that tells me about finance and investment in a non-technical way but doesn’t insult my intelligence?’ Few books do this. I have often recommended Burton Malkiel’s A Random Walk down Wall Street, but that book is now old (first published in the 1970s) and very American. So I thought I would have a go myself. And the credit crunch made it all the more topical.

Fed - a public hedge fund?

The financial sector’s debts grew even faster as banks sought to bolster their returns on equity by “levering up”. According to one recent estimate, the total leverage ratios (on- and off-book assets and exposure divided by tangible equity) for the two biggest US banks were 88:1 for Citibank and 134:1 for Bank of America. The bursting of the property bubble caused such ratios, which were already too high on the eve of the crisis, to explode as off-balance-sheet commitments and pre-arranged credit lines came home to roost. Only by borrowing from the Federal Reserve on an unprecedented scale have the banks been able to stay in business....

The result has been an explosion of the Fed’s balance sheet and of the monetary base. With assets approaching $2,263bn and capital of less than $40bn, the Fed increasingly resembles a public hedge fund, leveraged at more than 50:1.

-Niall Ferguson

Assorted Madoff

If Only the S.E.C. Had Taken Madoff’s Advice

Madoff's Innocent Victims

More on Fair Value Accounting

In light of the uncertainties about valuation highlighted by the 2007–08 market turbulence, this chapter provides an empirical examination of the potential procyclicality that fair value accounting (FVA) methods could introduce in bank balance sheets. The chapter finds that, while weaknesses in the FVA methodology may introduce unintended volatility and procyclicality, thus requiring some enhancements, it is still the preferred accounting framework for financial institutions. It concludes that capital buffers, forward-looking provisioning, and more refined disclosures can help to mitigate the procyclicality of FVA. The analysis presented does not preclude that there are other dimensions to FVA that are relevant and that, after further scrutiny, may indicate the need for additional refinements to the FVA methodology. Going forward, the valuation approaches for accounting, prudential measures, and risk management need to be reconciled and will require adjustments on the part of all parties.

-Fair Value Accounting and Procyclicality, Global Financial Stability Report

Assorted

Suspending Mark-To-Market Accounting Won't Solve Anything

Mark to What Market? The SEC Made the Right Call

Fair-value accounting becomes a political issue