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20 Oct 2011
LAST MONDAY, during lunch, I decided to take a look at the Occupy Wall Street protest movement outside St Paul's Cathedral. I anticipated meeting individuals who may be hostile to me or disagree with my belief in the free market system.
To my surprise I met individuals who were well educated, professionally qualified, articulate and genuinely concerned about events affecting them but seemed to have little control over. I share many of their concerns. The Euro crisis and events around the world seem to be fast escalating out of control . As a father of two nine year-old twins, I am becoming troubled if not scared about the world my children will inherit.
As a chartered accountant, an associate member of Corporate Treasurers and holding an Economics degree, I am concerned that something seems to be wrong with the present system. From a moral perspective, I find it difficult to accept the imbalances that have resulted. For example, 1% of the individuals in America control 40% of the wealth and that the average CEO salary package has grown from 30 times the average worker's salary package in 1970 to over 300 times today. This level of income disparity can only lead to increasing social tension.
Of particular concern to me is the deteriorating debt crisis that threatens to engulf individuals, corporations and governments around the world. I come from a generation who schooled in the mid-eighties and understood (as did Mrs Thatcher), the economics of Milton Friedman that argued that inflation was a monetary phenomenon.
Money out of thin air
In 2011, politicians and central bankers prefer a policy of printing money out of thin air. This has led to sovereign balance sheets around the globe becoming highly leveraged to the point of default. For example, in the UK at present there is approximately £1,033bn of gilts in issue. In 2000, the total was just £290bn and in 2008 it was less than £500bn. In less than three years the government has racked up more debt than it managed in the whole of the last century. In America total government debt has grown from approximately $1 trillion in 1980 to around $14 trillion now.
We have been participating in an illusion of wealth based on unsustainable levels of debt financed by flat currencies. History has shown us that this leads to hyperinflation that will debase the currency and create severe economic hardship and social unrest.
The accountancy profession should ask fundamental questions about the financial institutions seeking liquidity or recapitalisation.
Should ‘toxic' assets continue to be valued at ‘mark to model' as opposed to pricing more closer to reality or ‘mark to market' i.e. is there a question of solvency? We often hear about the $600 trillion of derivatives in the world financial system - are auditors comfortable with how these products are valued?
Lastly has the quiet migration from general partnerships to limited liability partnerships diminished responsibility of the accounting profession in performing audits?
Tim Sanders is a chartered accountant
Image credit: godrick/Shutterstock.com
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Visitor comments Add your comment
Finally, an emphasis on the real issue
Good article. I don't think the present crisis should do much to shake one's faith in free markets seeing as there's been precious little of those to even begin to bear culpability for what is in truth an explosion in credit expansion, courtesy of central banks globally.
The symptoms of course will include increasing wealth inequality and particularly high rewards for top level connected corporates. Here's an illuminating article on it:
http://mises.org/daily/5749/Why-the-State-Demands-Control-of-Money
Inflation is but one problem. The structural misallocation of resources caused by artificially low interest rates should be cause for concern too.
Posted by: Anthony, 20 Oct 2011 | 16:24
Perspective
The London School of Economics' Danny Quah provided a Chinese perspective on the rules of the global economy in a recent lecture at the LSE - they're great, success in capitalism has lifted out of poverty 630m of its citizens so far.
Possibly the G20 could arrange a more orderly re-balancing - but such are vested interests.
Posted by: slightly optimistic, 20 Oct 2011 | 16:28
An Ameircan Accountant
This has been something I've talked about long before the crisis events happened. Government financing and accounting (speaking from a US stance, I'm not sure how other countries operate) exist as separate entities from private sector accountancy. If a private company followed government accounting standards, their CEO and CFO would be put behind bars.
Governments have concocted some bizarre rules for itself and for its central banks. The Federal Reserve, while constantly being referred to as "private", doesn't operate on the same rules as every other private sector business. Even the nature of ownership is problematic since nominal control is dictated by government and profit is remitted to the US Treasury. Government believes that changing the nomenclature changes its nature, as if Congress can pass a bill saying ducks are cows and have all of our waterfowl magically turn into bovines.
We have a Federal Reserve that points at Treasury Notes and calls them the asset backing our currency. We have a Congress that considers reducing the planned spending growth a budget "cut". We have a government that doesn't follow the pension rules lain out for all companies in the nation when creating Social Security. Governments don't properly time match debt to benefit and regularly takes out 30 year loans to pay last month's power bill. Government operates on a modified cash basis - something businesses are not permitted. Assets are not marked to market. Liabilities don't exist until someone sends the bill for it. On and on.
Government accounting has never passed even the giggle test. I'm more surprised my counterparts worldwide are just NOW figuring this out.
Posted by: J. Murray, 21 Oct 2011 | 12:55
nothing to do with The Chinese
The current Europe public debts crisis has nothing to do with the Chinese.
The socialist benefits system in Europe is just not sustainable & debt fuelled growth is illusion.
Your government screwed up your livelihoods.
See this:-
http://www.youtube.com/watch?v=7s44vuVR0BY&feature=youtu.be
Posted by: George Lee, 24 Oct 2011 | 09:46
A Chartered Accountant spokesman for protesters
I saw this link where Tim Sanders speaks out outside St Paul's Cathedral. http://www.youtube.com/watch?v=6TkvAb48Eik
He is very persuasive when it comes to the bankers.
Posted by: Sheila Jones, 24 Oct 2011 | 10:47
Tim Sanders in the Evening Standard
Tim Sanders was widespread in the news and I saw him on the ITN London news.
He was quoted in the Evening Standard in an article about the anti-capitalist protest.
'....As the City workers spilled out to lunch, the campers were coming into contact with the people they were protesting about for the first time. No one was sure what to make of the man in the navy suit. ...."What we have here is grotesque greed across all levels. The average CEO pay in 1970 was around 30 times the average wage. You know what it is now? FOUR HUNDRED! They rob the system! It's inequitable!" A burly mixed-race man jabbed a finger at him.
"So what do you reckon about that guy the other week saying you gotta get your money out the banks?"
"Well, you've got to protect yourself," said the man in the navy suit. "Make no mistake! Greece has collapsed. And then it will be Spain and Portugal. And then the governments of the world will print billions. Trillions! And you know what the result will be? Hyper-inflation! Zimbabwe! Your money's worthless my friend. Your money's worthless."
"Too right, mate," said the burly man.
"So who's going to stand up for the people?" cried the man in the navy suit. "No one! Unless movements like this start across the world!" Everyone clapped.
The man later told me he was a chartered accountant named Tim Sanders. He had just come out for a sandwich but found himself delivering the most popular speech of the day.
See - http://www.thisislondon.co.uk/standard/article-23999586-we-need-to-talk-about-capitalism.do
You can see a photo of an angry Mr Sanders outside St Paul's.
Posted by: Anthony Hudson, 24 Oct 2011 | 19:07
We must question limiting auditor liabilty and Huffington Post article quoting Tim Sanders
Mr Sanders has made a good point - do the auditors really understand what they have been signing? Bring back 'partnerships' so that liability cannot be limited. In the past these partners could lose their house and that ensured that they checked out accounts properly!
I am in New York and Mr Sanders has been quoted in the Huffington Post.
See - http://www.huffingtonpost.co.uk/stefan-simanowitz/from-occupy-wall-street-t_b_1019199.html
I love the opening paragraph -
"I've had enough" says Tim Sanders. "Enough of this grotesque greed and fraud on a massive scale. Enough of spiralling education costs and watching my mother scrapping by on a meagre pension. Enough of the claim that the banks are too big to fail."
Posted by: Brad Kirk, 25 Oct 2011 | 01:24
Auditors need to restore balance and ethics to the financial system
I agree with the point that there needs to be balance and ethics in the financial system.
I saw a quote by Mr Sanders on Reuters and he makes this very point very well.
See - http://www.reuters.com/article/2011/10/18/uk-britain-protest-idUSLNE79H02M20111018
"I came down for a sandwich and got carried away," said Tim Sanders, a chartered accountant working in the city, drawing a small crowd as he held forth in his navy suit on the need to restore balance and ethics to the financial system.
"You’re seeing history right here, it’s going to sweep the world. These failing institutions are in the pockets of an elite. It’s morally corrupt. "
Posted by: William Stuart, 25 Oct 2011 | 12:05
Why has nobody been prosecuted?
I agree with Mr Sanders Youtube speech outside St Paul's where he rallied the protestors. Mr Sanders said that the banks were “gambling houses which have bankrupted the world” and Mr Sanders and warned "they're going to bankrupt the world unless we get a movement going".
There has been talk about Vickers report to be implemented in 2019 but what is happening about regulating these banksters?
Why has nobody been prosecuted? - The bankers and auditors were telling us that all is well but we now know this was NOT TRUE & FAIR! i.e. they were misrepresentations!
Mr Sanders is certainly getting a movement going!
Posted by: Nicola Gray, 27 Oct 2011 | 10:27
EMERGENCY!
Chattered Accountants should not sit down and watch, positive changes should be effected and professional bodies of various countries should work towards this
Posted by: Ojo Adedayo, 28 Oct 2011 | 17:56