Who's to blame? 'Hearings' focus on mortgage meltdown.

• Author: Allen, Bruce C.
• Position: Capitol Beat

Assembly Banking and Finance Committee Chair Pedro Nava (D-Santa Barbara) recently held two hearings in Sacramento on the accounting profession and its role in the subprime mortgage meltdown. The first featured class-action attorneys, one of whom has filed a billion-dollar lawsuit against a Big Four accounting firm.

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Hearing highlights included an indictment of the entire profession by a Teamsters Union official . who represents the Center for Public Interest Law and a collection of individuals who make their livings suing CPAs.

The "evidence" of wrongdoing consisted of selective news accounts, editorial commentary, the filing of some lawsuits that have yet to be litigated and the bankruptcy of a large California mortgage company. The rationale seemed to be that because CPAs play a role in the financial community, they must have caused the collapse.

At the follow-up hearing, which was purported to allow the accounting profession to respond. Andrew Atkeson, director of the Business Economics Program at UCLA, described the causal forces that led to both the run-up in the housing market and its quick decline. He indicated that the meltdown was a worldwide phenomenon fueled by easy credit. Atkeson also identified all of the information that was available to investors who bought securitized loan packages sold by the mortgage companies.

CalCPA member Dana Basney, a shareholder of Mayer Hoffman MeCann PC and a director of CBIZ Accounting, Tax and Advisory Services in San Diego, testified that "market forces were the primary cause of the decline in these companies, which were ultimately dependent on a real estate market that collapsed after it was pushed to unsustainable levels." He added, "The profession certainly did not set government policy that promoted subprime lending, it had no role in the repackaging and resale of mortgage instruments, and it does not set underwriting policies either at the governmental or the company level."

Bob Petersen, president of the California Board of Accountancy, then testified that the CBA needs additional resources to hire CPA investigators.

Preston DuFauchard, commissioner of the Department of Corporations, testified that, when his agency became aware of the impending crisis, he focused on increased scrutiny of" the situation and the market to ensure consumers, who had agreed to mortgages with the affected lenders, were able to complete their transactions through the collaborative efforts...