Hernando de Soto writes,

Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: “economic facts.”

Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts…Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don’t know and can’t prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

Pointer found in commentary from Barry Ritholtz, which was spotted by Tyler Cowen.

In a way, this strikes me as overstated. Yes, there were many bad lending practices. Yes, one problem with securitization is that the ownership of the mortgage cash flows get traded quickly while the noteholder of record changes slowly. But I don’t think that one can put the entire financial crisis into the category of property-rights fiasco.

De Soto emphasizes accounting shenanigans, most notably the off-balance sheet activities of banks that were not really off balance sheet. He describes ways that Greece used accounting tricks to hide some of its problems.

I have some fundamental questions about accounting, because it seems as if every crisis exposes an accounting scandal. The S&L Crisis exposed book-value accounting. This crisis exposed various ways in which financial institutions deceived regulators (and probably themselves) about their risk positions.

Does accounting go through cycles of accuracy and inaccuracy? Or is it always inaccurate? There is a saying that “You only see who is swimming naked when the tide goes out,” and maybe the exposure of accounting problems during a downturn is an instance of that.