A former Securities and Exchange Commission chairman has warned that the
meltdown of the US subprime mortgage market has the potential to rival the
economic aftermath of Enron’s collapse.
The turmoil in US markets has so far led to major lending institutions
writing down about $66bn since June.
Former SEC chairman Arthur Levitt said yesterday that he thought the
writedowns were just beginning and urged the Financial Accounting Standards
Board to close the loophole which allowed banks to keep their holdings off their
balance sheets, Bloomberg reported.
‘The subprime debacle has undermined investors’ trust. Their doubts threaten
the stability of the financial system as a whole,’ he said.
As with Enron, banks failed to disclose in their balance sheets the special
purpose structures which held subprime debt, Levitt said.
‘These banks claim these entities were separate. If so, then why are billions
of dollars being spent bailing out these companies? Evidently, they were not as
separate as was claimed in their accounting,’ he added.
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