GAO Report Concludes That IRS Needs to Enhance Internal Control over Financial Reporting

A Government Accountability Office Report found that the IRS had internal control deficiencies that contributed to the “continuing material weakness” in internal control over unpaid tax assessments.

Lofchie Comment: It is always somewhat annoying to see that the U.S. government is itself routinely deficient in ways for which private entities, if even slightly deficient, would be subject to massive penalties. It is doubtless the case that the problems that the government is trying to correct are challenging and that it is acting in good faith in trying to correct them, but that is often the case in the private sector as well.

See: GAO Report; Report Summary.

OFR Issues Working Paper on Systemwide Commonalities in Market Liquidity

The Office of Financial Research (“OFR”) published a working paper which explores statistical commonalities among granular measures of market liquidity with the goal of illuminating systemwide patterns in aggregate liquidity. 

Lofchie Comment: While the bulk of this paper is too mathematical to be comprehensible to lawyers, there are still bits of it that can be understood by those without mathematical training. Some of the key conclusions are: (i) liquidity is hard to measure; (ii) disappearances of liquidity are sufficiently unusual that they are particularly hard to study; and (iii) when liquidity dries up, it tends to dry up broadly. These conclusions emphasize the continuing importance of the Federal Reserve as a lender of last resort; in fact, the importance of this role is probably increased (rather than decreased) by both Dodd-Frank, and the rules adopted subsequently to Dodd-Frank, as these rules are very likely to discourage private market participants from taking risks in periods of market decline.

Oddly, the power of the Federal Reserve to act as a lender of last resort is attacked by a broad swath of the political culture, both left and right – even by those who agree that the actions of the Federal Reserve as a liquidity provider saved the most recent financial crisis from being much worse.  It is even odder that some of those who attack the Federal Reserve’s authority to act as lender of last resort (isn’t that a central bank is supposed to do?), somehow support the authority of the Federal Reserve and FSOC to dictate permissible investments for private parties (which is a very odd role for a central bank).

See: “Systemwide Commonalities in Market Liquidity,” by Mark D. Flood, John C. Liechty, and Thomas Piontek.