• Accounting Professor Responds to World Economic Crisis


The world economic crisis has put Professor James M. Cataldo in high demand – his insights have been aired on the pages of the Wall Street Journal, in board rooms of top government officials, and at a brainstorming session led by a Massachusetts Congressman.

“Accounting is at the forefront of this,” says Cataldo. “It determines how we keep score on financial performance and solvency”. Cataldo’s  background is ideally suited to understanding the current crisis. He worked for the Federal Treasury Department’s Office of Thrift Supervision during the 1980s Savings and Loan crisis, and he has traded mortgage securities, structured bonds and financial derivatives while serving as Director of Treasury Risk Management for the Federal Home Loan Bank of Boston.

Recently, Cataldo has been in the thick of a high-level debate over the methods that banks must use to value and report their assets – those mortgage-backed securities everyone is talking about. Banks chafed at an accounting method the government imposed last year called FAS 157. They complained that it made them paint too grim a picture of their assets. Cataldo and Associate Dean Morris McInnes were vocal in criticizing the inflexibility of FAS 157. Indeed their critical analysis in an article for the CPA Journal was recognized as the most distinguished article in the category of informed comment by the New York State Society of Certified Public Accountants.

But Cataldo’s criticism did not go as far as those who portrayed the accounting rule as the culprit for the current economic crisis. Recently, Cataldo’s take on the merits of Fair Value, the accounting method in question, appeared in a lively discussion among experts in the letters column of the Wall Street Journal. Cataldo’s  full analysis of the issue caught the attention of Bob Herz, chairman of the Financial Accounting Standards Board (FASB), who circulated it to his entire board.

The public debate prompted a recent modification of the valuation rules by the FASB and the Securities and Exchange Commission.  “They didn’t really change the rule so much as sanction a more flexible interpretation. It’s a more sophisticated approach” Cataldo said.

Cataldo’s public profile recently landed him in another discussion, this time on how to resolve the current economic crisis. U.S. Congressman Michael Capuano, D-Massachusetts, invited him to join a small group of academics and business leaders last week to brainstorm about policy approaches. Cataldo said the spirited discussion on Oct. 16 at the American Academy of Arts and Sciences in Somerville was a “good start.” Capuano, an active member of the House Financial Services Committee, plans to convene a follow-up meeting in the next few months.




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James Cataldo
Assistant Professor of Accounting