An old expression says, "If wishes and buts were candy and nuts, then every day would be Christmas."

We've revised it for William Isaac, former head of the Federal Deposit Insurance Corp. and author of "Regulating systemic risk is a job for a council" (Accounting Today, July 20-Aug. 16, 2009, page 8) to be: "If his wishes and buts were candy and nuts, then there would have been no recession."

He's a wishful thinker who blames the financial crisis on mark-to-market accounting without acknowledging the role played by bankers who imprudently plunged into risky instruments. Simply stated, he's flat wrong.

A DOUBLE ERROR

Like a shortstop who drops the ball and makes a wild throw to first, he commits a mind-boggling double error with these words: "The Securities and Exchange Commission currently has oversight authority with respect to the Financial Accounting Standards Board, which promulgates accounting rules. This oversight authority could be transferred from the SEC to the [systemic risk regulation] council to ensure that accounting standards are not adopted without consideration of the potential systemic effects on the financial system."

His first blunder is declaring the SEC and FASB incompetent to set standards without supervision. His second is believing standards can and should be controlled politically to send false messages to capital markets.

To prove his point (and ours, unwittingly), he made this prodigious gaffe: "For example, accounting rules allowed the creation of off-balance-sheet special-purpose vehicles that resulted in increased leverage and risks in the financial system. Now that we are in the middle of a crisis, FASB is proposing to put those vehicles back on the books of banks, which will reduce their capital ratios and their ability to lend. These and other accounting rules are far too important to be left to accountants without proper government oversight."

Here are his mistakes: It wasn't rules that created excessive leverage, but the bankers' folly when they voluntarily drove truckloads of money through the loophole; his wish to leave this loophole open would produce glaringly false representations; and all good accounting will do is reveal how far bankers reduced their real capital ratios with excessive leverage. Isaac also bungled by saying FASB would put the vehicles "back" on the books, even though they had never been there before.

PROPAGANDA

In effect, Isaac urges a coup by a like-minded cabal that would propagandize the markets into believing everything is fine when it isn't. He doesn't grasp that the problem is that real capital ratios are low; instead, he faults financial reports for revealing just how low they are. He'd rather attack truthful accounting than secretive bankers.

This thinking is worse than wishful. In fact, it's muddled because it ignores the markets' inherent skepticism and insatiable appetite for more information. His positions aren't defensible because he wishes markets could be fooled by non-neutral standards. Beyond doubt, Isaac missed the strike zone.

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