Frank Partnoy is the George E. Barrett Professor of Law and Finance at the University of San Diego. His most recent book is The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals.
Phony books played a central role in the financial crisis, but recent financial-reform proposals say virtually nothing about accounting. This omission is shocking. Simply put, the balance sheets of major banks were, and still are, fiction. Financial institutions did not, and still do not, disclose their true liabilities and true risks. If they had, we might have averted this crisis. Until Congress adds accounting to its agenda, and until financial statements reflect reality, financial reform will not work.