My new year's wish list
It has long been a Kroft family tradition to spend a relatively significant amount of time discussing and documenting new year's resolutions (and it is also a long-standing tradition of discarding or ignoring the resolutions not long after January 2nd of each year). Each year at around this time I'll sit down to carefully draft my plans for the year in an attempt to chart out my year's goals, plans and objectives. The plans are, by design, ambitious, considered and comprehensive. As my final blog submission for the year, I thought I would share with our readers some of my own goals for next year in the hopes that they may entertain and potentially inspire.
In 2011, I would like to own a Bugatti sports car like Jay-Z, have one million Facebook friends and appear during an episode of HBO's 'Entourage'. I'd like to finally obtain that work/life balance that I've read about and find that the Loonie is well above par during my spring break trip to Miami. I'm hoping for sunny and dry summer months, peace and prosperity for my clients, contacts and friends and interesting and challenging work assignments.
Do you think these goals are realistic?
Query whether my goals for the structured finance markets are more or less ambitious. It seems to me conventional wisdom in Canada now that securitization reform is inevitable and desirable. It would seem to some that even overly broad, ineffective and potentially harmful reform is preferred to the state of uncertainty and confusion that many identify in the current securitization environment in Canada. My own wish is that there is still time for a thoughtful discourse around regulatory reform in the Canadian securitization space and that regulators, investors, structurers and others interested in securitized product might carefully examine our market. I'd like to see an examination of the need for regulatory reform within the securitization markets in Canada that considers the performance of our assets, the composition of our deals and the profile of market participants, among other factors. My goal would be that reform (when it emerges) is contextualized, nuanced and appropriate. My partner, Mike Rumball, has written a great deal this Fall on this site about some of the potential perils of accepting holus bolus the rules and regulations developed under Dodd-Frank or by the SEC, particularly insofar as our experience and challenges in Canada have been different. Those differences should be exposed in a meaningful way. I share the view that some commentators have identified that the Canadian market - with smaller dealers, few players and different tolerance for risk, for example - may not be able to absorb the Dodd-Frank rules without adverse consequences. I'd like to see a report produced by a reputable source that identifies asset class by asset class how our public and private deals performed in the securitization market. If similar findings have already been produced, I have unfortunately missed such publication and from the conversations I've had I suspect many others also missed it. Many argue that a "Made In Canada" response to securitization reform is idealistic - our markets are too small and our regulatory and similar bodies are too busy to create a tailored response to this issue. In a time of ambitious new year's goals I am hopeful that those with the power and authority to affect regulatory and legal change to the way that securitization deals are completed, evaluated and governed will take an informed view of the situation and that our readers will share with us and them valuable insights in how to reform responsibly.
On the accounting front, I've been reading the accounting drafts relating to derecognition and consolidation of financial assets. I don't strongly recommend this reading and might refer you to Margaret Grottenthaler's summer reading list as a preferred alternative selection. Nonetheless, my new year's wish is that the accounting profession might creatively develop (together with other market professionals) some guidance as to the types of securitization deals that will satisfy off-balance sheet treatment even under IFRS. I've heard too often that conventional securitization deals won't satisfy the new principles-based rules under IFRS for off-balance sheet purposes and that we just have to get used to it. I accept the policy proposition that accounting treatment shouldn't be the principal driver for financing transactions but I still think there is room to craft sound commercial deals and achieve positive accounting results in our securitization markets.
A special word about heightened disclosure. It seems that in the post-credit crunch world 'more is more' when it comes to disclosure to investors. I appreciate the need to allow investors to make informed decisions about investment products with access to relevant information but I am also wary that there is a cost and expense to originators and market participants to verify, analyse and report disclosure. As one who sometimes cynically fears that much of the public disclosure available in securities offerings is seldom read, I hope that when rules around disclosure are developed for application for Canadian securitization markets there is an appreciation that adding more disclosure obligations on originators and structurers of securitization product may be a barrier to getting more deals executed.
Just a few thoughts. I hope some, if not all, of these wishes take place in 2011. I promise to let you know if my dream of owning a Bugatti or appearing on Entourage comes true.
