ShmoopTube

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Finance a la shmoop what is reg G? wasn't he one of the Archies friends and

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maybe that was Reggie..... okay so reg G or Regulation G is all

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about disclosure largely as it relates to relationships that banks holding [Dollar notes appear]

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companies and savings and loans have with NGOs or nongovernmental

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organizations or institutions well the key driver of reg G revolves [Man picks up folder of reg G]

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around the opacity of bank filings as they relate to risk and exposure in

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volatile times the obvious backdrop here was the mortgage crisis of 08/09

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with a goal of having that you know never happen again part of the issue was

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that a number of the banking terms were so complex that there wasn't a [Stack of banking term documents appear]

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pre-existing GAAP or generally accepted accounting principle measure for a way to even

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talk about things so complex as banking derivatives risk what does that mean?

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well Bank A is hedging its mortgage exposure because it believes that

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housing starts are a good proxy for the health of the economy so they get an

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investment bank to create a liquid index against which they can be short or long

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with leverage and with derivatives believing that these hedges will in fact [Hedges attach to frankenstein monster]

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give them life under dire situations like that mortgage crisis well in fact

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many of these hedges became so complex and relied on non-GAAP terms like EBITDA

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which is not a GAAP term where clever accountants can more or less make up [Accountaint appears at yummy fudge inc]

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whatever they want the numbers to be such that Regulation G now put the

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burden of clear disclosure on the affecting bank or institution and that's

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a big deal because even the experts even the top top experts when the banking

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crisis you know hit the fan well even they couldn't explain the derivatives [Banking expert throws paper away]

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behind the theoretical hedges the banks were using and while this country almost

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went bankrupt in the process all right so the basic idea is that if there was

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ever a problem the judge about to put management in jail didn't need a PhD in [Certificate of accounting PhD torn up]

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accounting to figure out or be able to trace the logic of whatever filings were

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made and whatever derivative and hedging and all the other crapola that the banks

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did to hide that they were trying to find clever accounting ways to make

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money rather than the old-fashioned way of just selling

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good mortgages to honest people who actually pay off the debts they promise

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to pay so when you think reg G think gee whiz I actually understand what the hell [Reggie discussing Reg G]

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these banks are talking about

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