Accounting Antecedents of Financial Crisis: Insights from Shyam Sunder's Workshop

Delve into the antecedents of the financial crisis through Shyam Sunder's workshop at Bocconi University. Explore the growth of financial reporting standards, susceptibility to financial engineering, new definitions of risk, and more, shedding light on the challenges faced in addressing and preventing crises in the financial sector.

• Accounting
• Financial Crisis
• Shyam Sunder
• Financial Regulation
• Risk

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Uploaded on Mar 15, 2025 | 0 Views

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1. Accounting Antecedents of the Financial Crisis Shyam Sunder, Yale University Prudence vs. Liquidity: Alternative Approaches to Money, Finance and Accounting Workshop at Bocconi University, Milan March 1, 2013 1/18/2013 Sunder: Financial Regulation & Engineering 1

2. Accounting Antecedents of the Financial Crisis Growth of, and dependence on written standards of financial reporting since 1930s 1/18/2013 Sunder: Financial Regulation & Engineering 2

3. Accounting Antecedents of the Financial Crisis Susceptibility to mathematical financial engineering 1/18/2013 Sunder: Financial Regulation & Engineering 3

4. Accounting Antecedents of the Financial Crisis Dispersion of outcomes as new definition of risk 1/18/2013 Sunder: Financial Regulation & Engineering 4

5. Accounting Antecedents of the Financial Crisis Accountants abandon prudence 1/18/2013 Sunder: Financial Regulation & Engineering 5

6. Accounting Antecedents of the Financial Crisis Accountants worship at the alter of liquidity The so-called Fair Values (rhetorical trick) procyclicity, accounting from markets instead of for markets) 1/18/2013 Sunder: Financial Regulation & Engineering 6

7. Accounting Antecedents of the Financial Crisis Management of market liquidity by issuers of derivative securities; off-spring of written accounting standards 1/18/2013 Sunder: Financial Regulation & Engineering 7

8. Accounting Antecedents of the Financial Crisis Little done to date to deal with these challenges to stop the current crisis or to prevent them in the future 1/18/2013 Sunder: Financial Regulation & Engineering 8

9. Accounting Antecedents of the Financial Crisis What can be done: social norms, Strict specification of limits on what banks with access to public money can do Good accounting and finance is boring and low-paid Like plumbing or electrical wiring, not exciting like fighting a fire or skiing 1/18/2013 Sunder: Financial Regulation & Engineering 9

10. For example Figure 1: Relative Wage and Education in the Financial Industry Thomas Philippon, Ariell Reshef, Wages and Human Capitalin the U.S. Financial Industry: 1909-2006, New York University and University of Virginia Working Paper, 2008. 1/18/2013 Sunder: Financial Regulation & Engineering 10

11. 1/18/2013 Sunder: Financial Regulation & Engineering 11

12. Thank You. Shyam.sunder@yale.edu www.som.yale.edu\faculty\sunder 1/18/2013 Sunder: Financial Regulation & Engineering 12