From the October 2008 issue of Wealth Manager Web • Subscribe!

October 1, 2008

THE LAW

On Sunday, Sept. 7, Treasury Secretary Henry Paulson announced that the Treasury Department, in collaboration with the Federal Reserve and the new independent regulator, the Federal Housing Finance Agency (FHFA), had moved to place into conservatorship Fannie Mae and Freddie Mac, the troubled government-sponsored enterprises (GSEs) that have been under pressure due to the housing credit crisis. FHFA Director Jim Lockhart said in a separate announcement that in an effort to "restore the balance between safety and soundness and mission, FHFA has placed Fannie Mae and Freddie Mac into conservatorship," which he defined as a "statutory process designed to stabilize a troubled institution with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate the Enterprises until they are stabilized."

Following the Federal Reserve-brokered bailout of Bear Stearns in March, and the Blueprint for Financial Services Reform that Sec. Paulson floated in the spring, the most recent development did nothing to stem the broader debate over the role of government in an investing and economic environment where ostensibly the market alone dictates winners and losers. One clear lesson: If you're going to invest in any bank or brokerage firm, make sure it's a big one that the Feds won't allow to fail outright.

But the potentially bigger news as the summer faded away was the SEC's August 27 announcement that it was releasing for public scrutiny another blueprint which, if implemented, could lead to the use of International Financial Reporting Standards (IFRS) by U.S.-based public companies beginning in 2014.

The move is rooted in the concerns of many inside and out of government that the United States in general--and Wall Street in particular--is losing its standing as the preferred locus for capitalization--some say a development that has already occurred, at least as measured by the number of IPOs that come to market in each country around the globe.

The SEC said it would decide by 2011 whether abandonment of the current U.S. Generally Accepted Accounting Principles would be in the public interest and would benefit investors. According to the SEC, the proposed multiyear plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission.

The move is one of the fruits of the Capital Markets Competitiveness initiative of the SEC and Treasury that began in March 2007. Paulson said last May that "strengthening the competitiveness of America's capital markets has been a priority issue for me since taking office," and that a "transparent financial reporting system and vibrant auditing profession form the backbone of a marketplace investors can trust."

James J. Green, editorial director, can be reached at jgreen@sbmedia.com

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