Frank Partnoy

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.

Recent Articles

No More Phony Accounting

Cooked books helped produce the collapse --
and the fakery continues.

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. Accounting can be boring, so let me begin with a startling illustration. Below is a balance sheet, a real balance sheet, of a real company. Look at the numbers and try to guess which company it might be. While you are doing so, remember that the market declined sharply in 2007, crashed in 2008, and recovered by more than half in 2009. For most companies, the previous four years were a roller-coaster ride in which they soared, plunged, collapsed, and finally recovered (some). Now...