Since all my pals out there are so keenly interested in finance and accounting, I thought I’d supply you with ample bathroom reading for your week.  As you may know, the U.S. Treasury Department has presented a plan to Congress to purchase impaired assets of financial institutions.  An impaired asset, for those of you who majored in history in college, is an asset which has a lower value in the market than it does on the holder’s balance sheet.  This can happen for many different reasons, the most prevalent reason today is the large amount of mortgages that can’t be paid by the borrowers.

So, in that light – William Isaac – a former chairman of the FDIC – has an informative opinion on how to save the financial system.  He seems to think the crisis could have been avoided altogether.

At the outset of the current crisis in the credit markets, we had no serious economic problems. Inflation was under control, GDP growth was good, unemployment was low, and there were no major credit problems in the banking system.

The dark cloud on the horizon was about $1.2 trillion of subprime mortgage-backed securities, about $200 billion to $300 billion of which was estimated to be held by FDIC-insured banks and thrifts. The rest were spread among investors throughout the world.

The likely losses on these assets were estimated by regulators to be roughly 20%. Losses of this magnitude would have caused pain for institutions that held these assets, but would have been quite manageable.

This is just one man’s opinion – but as an accountant, I think he has a pretty good point.  After the dust settles on this mess, the U.S. taxpayers are going to be saddled with hundreds of billions of dollars of debt – which will have to be repaid by our children and their children.  It could have been avoided.