"The Accounting Trick Behind Thirty Years of Scandal"
August 27, 2012
That would be special purpose entities which the piece, citing a recent academic paper, were responsible for Michael Milken, Enron, and the sub-prime meltdown.
But not to worry: this time, the regulators are going to get it right. Really. Trust them.
The good news, however, is that regulators have made serious strides in addressing the dangers posed by these accounting structures. The Financial Accounting Standards Board, a non-profit organization that is charged by the SEC with writing accounting standards, adopted rules in recent years which forced banks to bring many of their SPEs onto their own balance sheets.
For the utter unlikelihood that the problem will stay "fixed," see this great piece by Arnold Kling, "The Chess Game of Financial Regulation".
A sobering fact is that the response to each of the first two crises helped to lay the groundwork for the next – and current — crisis. It turns out that financial regulation is not like a math problem, which can be solved once and stays solved. Instead, financial regulation is like a chess game, in which moves and counter-moves proceed continually, eventually changing the board in ways that players have not anticipated.