Thursday, September 10, 2009

Who's that behind Steve Liesman?

 Lehman Special Part 1

I stumbled upon this, it's part 1 of an FT piece on the collapse of Lehman. I think it's good stuff.

Tuesday, August 25, 2009

Street Fight: Health Care Reform -

Street Fight: Health Care Reform -

Shared via AddThis

Guy Adami at about the 4:15 point in the clip makes the point that I'd love to see a politician make in the health care debate. Take care of yourself and you may have insurance, don't and you won't.

Monday, August 3, 2009

Opining on Healthcare

First, I have to say that there is absolutely no easy answer to solving what I can admit is an unsustainable current state in healthcare. However, I have not witnessed a single politician or pundit stand-up and give an honest, if not politically prudent, assessment of what needs to be done in order to lower cost and provide benefits to the deserving.

This approach involves personal responsibility! Ah, say it ain't so...Americans actually taking responsibility and earning their right to health-care, either through education and occupation or by taking minimum responsibility to actually take care of one's self.

What I want to hear is someone say "not every American deserves healthcare." Imagine that kind of honesty, which would surely result in the immediate end of any political career, right? Unless they're right!

This is America, we have warning labels on cigarette's and people continue to smoke...guess what? Get lung cancer or heart-disease and pay for your own treatment. We all understand (at least should understand) that obesity will undoubtedly lead to increased health risks, including diabetes and cancer. Well, make no attempt to get your life under control and maintain a minimum level of health and you can pay for your own healthcare.

Why should insurance companies (via employers or not) or the government have to pay for people with blatant disregard for basic health precautions? Answer, they shouldn't! It's not fair to the rest of companies, government or the rest of us.

Now, I do think it's important to possibly allow coverage for children and elderly (assuming the elderly lived their lives within the minimum standards), so I'm not completely inhumane. I don't believe that everyone should be held to standards that are anything outside of basic, I'm talking minimums here, not that everyone has to be perfect. Far from it, just avoid some basic well known risks, and when a doctor documents a risk and you make no attempt to remedy the deserve to lose the right to coverage.

What would this look like in practice?

First, a general continuation of the employer provided healthcare system we have today. However, elimination of maximum pay-outs by insurance companies, with the option for companies to make a one-time payout to shift continuing coverage to the government. Once on government coverage all persons receiving coverage would be required to pay an additional % of income tax. The tax does not have to be excessive, it could be tiered to income, but it has to be something.

For the unemployed, government supported continuation of coverage (COBRA) unless an individual chooses to commit to government coverage, which would involve a commitment to pay for coverage (perhaps out of future earning via an income tax). This would again be subject to my personal responsibility clause, so it's not a guarantee unless someone actually attempts to take care of themselves (imagine that).

Now, as for children, I've already said I can favor 100% coverage for all children, up to 18 years of age. After 18, the cost of continuing coverage should be backed via 100% government loan financing for those pursuing continuing education on at least a part-time basis. I'm not saying the government should pay for it, but perhaps providing coverage for a set monthly or annual amount that is payable through education loans. In other words, the education loans would have to be approved at an amount for tuition, books, etc. plus a mandatory amount to allow for health coverage.

Elderly- As I said referenced earlier, just reaching a certain age while demonstrating continuing disregard for personal care does not provide one the right to healthcare. So, for those that demonstrate the continuing commitment to their health, they get coverage. those that don't get no coverage. So your choice going through life is, (A) maintain minimum standards of personal care and ensure oneself with continuing coverage or (B) demonstrate a disregard for basic personal care and clear disregard for ones own health and as earned, get no coverage!

And how about something to provide an additional benefit for personal responsibility, like a tax credit for preventative health. Say something like $500 credit for obtaining an annual physical and avoiding certain risks, which must be verified by the examination. Such as smoking, excessive alcohol abuse and obesity. As part of this I would require doctors to provide overall assessments and provide specific recommendations that if ignored would result in, not only the loss of the credit, but possible loss of future healthcare benefits.

Back to reality-
Harsh, yes. Wishful, yes. Any chance of seeing this happen? Absolutely not. We would never allow people to care for themselves in a responsible way in this country. Even though with my approach the person who hit bad luck, such as being involved in a vehicle accident or being stricken by an uncontrollable cancer or health condition would still be eligible for and receive coverage. And the individuals who display a blatant disregard for their health would give up the right to having any benefit in this country.

For a little quick reading on the subject of obesity and healthcare costs, check out this post by Greg Mankiw.

Tuesday, May 19, 2009

Securitization and Off-Balance-Sheet SPE's

FASB is going counter to the approach on M2M and will be requiring additional disclosure for off-balance-sheet loans. This is significant because it may further reduce the credit available in the shadow banking system, as the banks that ultimately support the shadow system are now going to have to disclose their exposure.

A few other posts or articles on securitisation/shadow banking system that I've noticed today-
Marginal Revolution's take and Tyler refers to The Economist article here and also Arnold King here.

Monday, May 18, 2009

Rating Agencies on the hot seat

The rating agencies are getting their day in front of Congress. I'll be interested to see how this works out.

My hope is that they would somehow be held legally liable in the same way that auditors are when they fail to apply rigorous standards to their work.

Sunday, May 17, 2009

Shadow banking system

I was actually reading chapter 7 of Animal Spirits, which provided a quick summary of the shadow banking system. I then did my scan of some blogs that I follow and found this incredibly detailed, yet not too long, post from Zero Hedge. It's probably the best description of the shadow banking system and it's role in the macro-economy that you will find.

On a positive note, there's at least some support for the idea that the shadow system is holding up and maybe bouncing back.

Friday, May 15, 2009

Fed updates

Some updated Fed data and the WSJ analysis of the CPI and deflation risk.

Dallas Fed official gives Fed pat on the back.

Tuesday, May 12, 2009


A couple risks-

Consumers are too debt laden to bail out the American economy, so we're dependent upon foreign trade or investment to bring America back. WSJ hopes China can help.

The risk of so much U.S. debt.

And for the 'oh, by the way' category, even tax month was negative and social security is drying up (still).

SNL on the Stress Tests

Sunday, May 10, 2009

What's on my Kindle

A snapshot of what's currently on my Kindle:
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George Akerlof and Robert Schiller. I just started this one and it's probably not for everyone, but as a fan of behavioral economics/finance I've found it interesting so far.

House of Dimon by Patricia Crisafulli. I was not very impressed by this book, I got it because I'm a fan of Jamie Dimon's and it started out pretty well. However, it never got below the surface and started getting very repetitive.

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William Cohan. I liked this book a lot and it gives a rather in-depth view of the Bear Stearns culture and inner workings that led to its demise.

Some samples that I want to test before committing to the full book (and a great feature of the Kindle)-
The Return of Depression Economics and the Crisis of 2008 by Paul Krugman.
Predictably Irrational by Dan Ariely (this one I started and really liked, I'm just waiting for an updated version to be released towards the end of the month).
Lords of Finance by Liaquat Ahamed.

And I always have a Sunday New York Times and a random day of the FT, although I don't subscribe to either.

Stress Test Follow-Up

I could not find a solid answer on the basis of whether quarterly results were included in the anticipated capital calculations. However Friday morning on Squawk Box it was mentioned that the results included estimated normal profits. So the question becomes, is the estimate reasonable? If it's too low, banks will need more, if it's too high banks will need less capital. Fortunately from the accounting standpoint, the Fed is requiring the capital raising plans to be delivered within 30 days and with a timeline not to exceed 6 months, which takes pressure off of the reporting of the bank's financial results (at least for now).

A couple different views- thinks the capital levels may have been set too low.

The Wall Street Journal has an article on the back and forth that occurred to keep the stress tests from being worse and requiring banks to raise additional capital.

Thursday, May 7, 2009

So today was the day

I have not had time to review the entire report, but if Fast Money on CNBC had it right during their coverage, the one thing that this showed, is the potential impact of the the credit card debt. Besides that, is seemed that the minimum additional capital requirement were not as bad as expected.

I'm still not sure on the exact details, I seem to remember hearing that the capital requirements were all based on 12/31/08 numbers, if that's true for the banks that claim a profit as of 3/31, perhaps the capital requirements have already gone down. I'll have to see if anything comes out about this and post what I find in the next couple days.

Monday, May 4, 2009

Credit card problems and rating agencies

I've written on this topic before and it keeps coming back into the news, although not having much of an effect on the market. Today's story comes from Also, a more general piece on the Fed from Bloomberg.

I hold firm on the belief that as unemployment increases there will be increased pressure on banks, and a primary shoe that has yet to hit the ground is unsecured consumer credit.

Another topic I've written on in the past, the ineffectiveness of the credit rating agencies...seems like agrees.

Wide-Screen Kindle

Wow, this came much faster than expected, but according to most reports is going to release the next version of the Kindle on Wednesday.

The larger screen size is said to target newspapers and magazines to accommodate better display of advertising and insets. In addition, the new screen will allow Amazon to enter the e-textbook market.

Instead of pre-ordering Wednesday as soon as it hits the site (assuming this is all true) I do plan to wait a little, see the new features and then decide whether to jump in. I can hardly justify 2 Kindle's within 3 months, that's a lot of money to save a few dollars a book.

Saturday, May 2, 2009

Swine Flu's Economic Impact

The Economist focuses on Mexico, and it's clearly not going to be good for Mexico. From the impact of cancelled events to the countries with travel restrictions impacting tourism, thus far Mexico is the nation most impacted by the outbreak. (personally, although not official yet, I no longer plan to visit Cozumel at the end of the month.)

Overall, Seeking Alpha believes that the global impact will be minimal.

Friday, May 1, 2009

Protectionism in Asia?

Nouriel Roubini has a piece in Forbes discussing the future of large global imbalances. The basic question is whether the large balances in Asia (primarily China) and in the commodity producing Middle East nations is sustainable or whether they should focus on increasing domestic consumption. Therefore reducing their dependence on foreign nations (such as the U.S.) for economic growth. However, since these countries are largely invested in the U.S. one must wonder whether this approach may cause a significant unwinding in the global macroeconomic environment, one that may extend economic depression beyond what we've witnessed to date. Ultimately the IMF will play a key role in ensuring that any potential unwinding at the macro level will be orderly.

So while we consider protectionist policies in the U.S. perhaps we should pay more attention to protectionist policies developing with are largest trading partners, especially the ones that own significant amounts of our debt. This may be the ultimate house of cards.

Sunday, April 26, 2009

Stress Test Results

Seems that one (unnamed) bank failed the stress test, we'll like discover which one as soon as the market opens on Monday morning. I'm guessing Citigroup or Bank of America, but time will tell. Official results will be released on May 4th.

A few more articles on the stress NY Times and Businessweek.

Friday, April 17, 2009

JPM says 'NO' to PPIP

Found this from What I find interesting is not that JP Morgan has no interest in selling assets into the PPIP, now that M2M has been relaxed there's no advantage for any bank selling their assets. The part I found interesting is Jamie Dimon's comment indicated that they would not participate as a purchaser either.

My thoughts are this...does Dimon fear that participation in the PPIP (as a buyer) would lead to some kind of additional government oversight that would potentially impose unfavorable government involvement in the bank? If that's true I wonder what's going on behind the scene regarding payback of TARP money. It seems obvious to me that if JP Morgan pays back the TARP money it puts incredible pressure on all the other banks.

With that said, I believe Dimon's comments on TARP repayment (see Bloomberg article here) says it all...the government must not want them to pay it back. Lack of participation in PPIP indicates they do not need additional capital, so the only reason they would not be able to pay back the TARP is because they're being told to sit tight. Poor Jamie, do everything right and you still can't shake government intervention.

Sunday, April 12, 2009

Marriage advice via WSJ

Just had to pass this on. Anyone married will see the value and can probably relate to it.

FHA issues

I don't find this to be surprising at all, but it appears that FHA may be in need of a bail-out. Could it be that since FHA's mission to increase access to affordable housing is backfiring? I mean, US home ownership indicates that home ownership reached a high of 69% in 2004, but remains above the historical post-WWII levels. So as the FHA is pushing to expand home ownership into minority and low income populations (see it for yourself on page 8) is it any wonder that they're seeing an increase in delinquencies and foreclosures. There's a direct relationship with the employment (or unemployment) levels for the FHA's target market. Employment statistics for by ethnicity and eduction level (which I associate with income level) would clearly indicate that this is a run-away train.

Check out some additional data on U.S. home ownership here.

I just want to know if Congress will call HUD / FHA leadership to the hill and interrogate their risk management practices. Doubt it.

Saturday, April 11, 2009

Kindle 3 Update...

I'm always excited to see updates on the next generation of the Kindle, so when this hit today's WSJ I have to share it. I'm just hoping this isn't like last year when rumors were floating that the Kindle 2 would be out before the holidays and it didn't hit until the end of February. Rest assured I'll be pre-ordering as soon as it's available.

Don't know if this would be branded as Kindle 3, since it's targeting a slightly different market but if it opens the textbook market I might have to stay in school just because of the Kindle.

Friday, April 10, 2009

Pro-M2M sentiment

I'm seeing more and more articles assaulting the changes in M2M rules. Here's another from the It's going to come down to whether banks are willing to accept the valuation on their toxic assets and sell them as part of the PPIP or whether they will refuse to part with them and instead mark the assets to model (higher than market). Last I heard the PPIP was still weeks away, but it's going to happen eventually. I still say whatever happens the activity validates the clarity provided by M2M, so bring it back!

Thursday, April 9, 2009

Unemployment situation

WSJ's latest survey of economists predicts the recovery in the job market will not happen until the second half of 2010.

I'm still undecided on what I think the recover will be in the job market. I'm obviously not an 'expert' but I think the rapid shedding of jobs has left companies particularly vulnerable when the inevitable recovery does occur. Therefore, what I see is an unexpectedly quick bounce-back in the job market and hopefully one that happens sooner rather than later.

On a side note, I had the experience of a job fair today, with a view from the opposite side of the table (from the hiring company side). It was a unique experience and while most resumes that we saw were from employed individuals looking for an 'upgrade' I felt both a sense of embarrassment and shame when walking into the event. Embarrassment because I am employed when so many are not (even if that's not exactly true in the NoVa job market) and shame because I didn't want people to think I was looking for a job myself. So it was humbling in several ways.

Goldman Sachs' View

I found this to be an interesting and informative read and look forward to the future publications.

I find the piece on the accounting treatment of SIV's interesting, but that's just showing my bias in accounting (and maybe some Enron flashbacks). Sooner or later the whole concept of off-balance sheet entities will be eliminated, since it's hard to argue that there's any long-term benefit to having them. They allow for short-term gains and at best neutral long-term results while at worst they tend to bring companies to their knees.

Tuesday, April 7, 2009

Monday, April 6, 2009

Isn't this the SEC's job?

This is just ridiculous.

Not all shareholder lawsuits are the same

As we begin to see the beginning of an inevitable wave of lawsuits arising from the credit crisis and market meltdown I've come across a couple items that indicate not all lawsuits are equal. Recently one of the first lawsuits from the mortgage meltdown was filed, and I'm sure there will be many to follow. All the large firms will be hit with them and it will take years to resolve, however the ramifications could be significant. Take the E&Y settlement in the case of Healthsouth, as the 8th largest auditor settlements it's stay in the top 10 is likely to be limited.

Obviously I'm biased, but let's be realistic...what moves the market on a day-to-day basis, the accountants or the credit ratings agencies? My vote is the credit rating agencies, and I doubt I'm alone. As accountants we follow specific guidance and yes interpretations may be different and they are subject to bias, however at least we have something to stand on. In addition, it's not like we get paid more for a specific opinion (although recurrence has a value too I suppose). I don't think enough legal heat is being placed on the credit rating agencies, and they play by their own rules.

I can't understand why lawsuits against credit rating agencies are not as successful as they are against the accountants. Apparently it's an uphill battle against the ratings agencies, but a slam dunk against the accountants.

Friday, April 3, 2009

Treasury auction update

Treasury Auctions remain strong.

Another Mark to Market post

Saw this on the mark to market myth through (great blog site).

Also, if you see Tyler's post on Delta Airline...been there done that.

Monday, March 30, 2009

No More Dylan Ratigan on CNBC

They mentioned this during tonight's episode, so I had to confirm. It appears it's true. Melissa Lee's not awful, but the show's not the same.

Sunday, March 29, 2009

Kindle, Snip and Staying Home

3 unrelated items here...

First, I'm still already on the hunt for information about a 3rd generation Kindle and so far only finding rumors and speculation. These rumors are hopefully better that the ones I started following last year, which originally predicted the Kindle 2 would be out in time for the holiday shopping season (for the record they missed that by a good 2+ months).

An unrelated item of interest that I found amusing, you never know what you'll find in an economics blog.

Finally, something I actually sought out and was surprised I could not find more articles on...NCAA tournament attendance. Here's a couple I did find- an AP Story and the Fan Box blog. I'll keep looking for articles to support what I see on TV, which is a lot of empty seats.

The textbook of the future? - Opinion

The textbook of the future? - Opinion

Thursday, March 26, 2009

Roubini's latest thoughts

Today's Nouriel Roubini update is from his Op Ed in the NY Daily News. Roubini and Richardson lay out some scary thoughts. Although they are firmly behind the Geithner plan they also provide the ultimate question to be answered...will selling toxic assets push banks over the edge? They argue that the government needs to push the banks to sell. I say, if banks are really convinced that their valuation models are reasonable (and hence a rational alternative to MTM), then let them keep the allegedly toxic assets. The irony is that if banks subject their assets to the PPIP (Public Private Investment Plan) and don't like the market price they prove the value of MTM and should therefore right down anything they are holding immediately, however if they withhold assets from the market they would seem to be legitimately supporting their model valuation approach. In other words, banks can't have their cake and eat it too...should be fun to watch.

Check out this article for more on whether banks will really sell.

Treasury auction update

I think I'm going to start monitoring the Treasury auctions to see if they detect on-coming weakness that could cause significant problems as the government attempts to raise funds to pay for all the economic stimulus. Here are the results of today's auction, which shows that there's still strong demand as bid to cover remains over 2 (actually 2.52).

Wednesday, March 25, 2009

It could be worse

Looks like the UK is taking a bigger hit in the public debt market then the US. Quick check today's US 5 year auction shows that there's still over 2 bids for every offering. Let's hope it stays that way or we won't be dependent upon the Fed printing money and then it's all downhill.

Doom = Good

Nouriel Roubini is apparently a fan of the Geithner plan, however the FT thinks it may take banks under.

I like the FT piece because it takes the heat off of MTM as the cause, it's essentially saying that if Geithner's plan yields a market price that banks can't sustain then it proves the value and necessity of having MTM in the first place. Welcome to zombie banks if that's the case.

Tuesday, March 24, 2009

Geithner's Plan and Mark-to-Market

Couple thoughts on Geithner's plan (aka 'TALF'). First, seems like Wall Street has finally warmed up to him, no longer does the market free fall every time he opens his mouth. Now, it does seem like this whole plan is a bit of a stretch of the FDIC's role and the details seem to be a huge win for anyone participating (with the exception of the tax payer). So in the end, this is another bail-out that's disguised as a market making mechanism. Socialism here we come.

One thing I would like to see is an ETF or Mutual fund established to allow some of us main street investors to participate in the TALF program. I mean if I have almost no risk and could stand to make some serious returns I want my piece of the pie. Let's hope Bill Gross hooks up the rest of us with a deal like this.

A quick final piece on mark-to-market (MTM), can't wait to see the relaxed reporting requirements combined with a pseudo-market created by the TALF. What a mess!

Tuesday, March 17, 2009

Whitney right again?

It's hard to decide which way banks are set to go. They've continued their rally from the end of last week and people like Larry Kudlow continue to talk up the upward sloping yield curve as a positive sign for the banks. However, the other side of the story is told by Meredith Whitney during her appearance on CNBC today.

I agree with Whitney, there's too much credit risk on banks balance sheets and I continue to believe that the credit card shoe has yet to fall. Commercial banks continue to hold a massive amount of consumer credit (currently at $877 Billion) and 4Q08 was up by $74B over 4Q07. Check out the facts!

One other thing. I don't want to hear that changing mark-to-market will solve everything. It may help stop a continued slide in non-existent markets, but it will not stop job losses, create consumer confidence and cause skeptics like me from questioning the true strength of a bank's balance sheet.

Sunday, March 15, 2009

B-School Re-Do?

From today's NY Times, interesting piece on what role business schools may have had in arriving at the current financial situation and what they may do to change in the future.

It will be interesting to see how the cultural change that occurs because the events of the past year (since the collapse of Bear). Will schools be able to provide training that supports more responsible capitalism or (more likely in my opinion) will society create its own (free-market) solution?

Like any good capitalist I believe the market will create its own behavioral change that re-adjusts measures of business success to include more then a bottom line view. For instance, people will focus on finding companies that make understandable profit and companies that they perceive as being more stable and less focused on immediate short term profit. Therefore, companies with inconceivable profit will be avoided by investors, lose their stream of capital and eventually fall into line. The role of business schools is minimal, companies will figure it out for themselves.

Saturday, March 14, 2009

Unions: An Anti-American Institution

Saw this article on The Economist website. It will be an interesting fight over the next few months or years as unions may try to regain strength and relevance. From an economic view I absolutely cannot understand how labor unions provide benefit to an economy. For a good summary of an economic view I found this piece, which may be a little dated but provides a very sound explanation of the general view of most economists.

I find that it's difficult to argue in a modern economic environment, where globalization is a reality here to stay, that any artificial increase in labor costs will not be adjusted out by simple supply and demand. The Economist article reaches this point in the last few paragraphs when it discusses union views and the role they play in protectionism. If as a firm I can simply move my factory to a different area or outsource my labor inputs in order to lower my cost, I can shift my supply curve to the right therefore increasing my output at all price points, which in theory should lead to a greater quantity demanded. If the theory holds, I could potentially increase the overall number of jobs I provide (albeit at a lower wage rate) and contribute to global growth.

We're at a point where we cannot afford to cut ourselves off from the global economy. If items can be produced cheaper overseas or through non-union means firms have an obligation to both their shareholders and society as a whole to do so. By contrast labor has an obligation to improve itself and constantly provide society with the greatest output at the lowest price.

As an 'oh by the way' it's easy to see why labor improving itself has a positive impact on the overall economy. It's no accident that the educated (or those who took responsibility to improve themselves as labor) are also the least likely to be unemployed. See the facts! I guess my overall summary is that labor unions attempt to shelter the under-skilled, which is not possible in a fully competitive global economy, therefore our government has an obligation to ensure that their policies support the greater good of the US, which is to discourage the anti-competitive wages of unions and focus on providing additional skills to the workforce through education and education related benefits (such as tax deductions and credits).

Wednesday, March 11, 2009

Next Shoe?

I have been saying for a while that homes are the start and eventually credit card delinquencies and non-performing debt will be the final shoe to drop. Seems like banks are taking preemptive action to try and cut off the credit card problem. Here's a couple articles from the past few days, first is Meredith Witney's opinion piece from the WSJ, also today I found this article from, which references the Witney article. In general, banks are cutting back consumer credit, which will keep the economy from recovering on its own and it's not like the $400/person tax credit is going to make up for people no longer having a credit line as security.

So despite the last 2 days, I'm still not ready to touch bank stocks because even though they're cutting back credit lines, they'll still end up holding the empty bag on billions of debt. (Maybe that's why BoA is considered to be worthless) Also, no way the overall rally is real if consumers don't have money to spend. Here's a case where the rush to avoid mark-to-market accounting is having a direct economic effect.

I used to disagree with Larry Kudlow's anti-mark-to-market views, but I've come around as we've found a middle ground in either a model valuation approach or a process to amortize the write-down over a period of time. So unless there's a change to mark-to-market there will continue to be significant write-downs on credit card debt unless there's a change in the accounting rules, which may help restore consumer confidence by encouraging banks in increase or re-instate credit lines.

Tuesday, March 10, 2009

Head Fake

So the news today is all about Citigroup sparking the huge rally. Not knowing what the market's reaction would be I absorbed the news with skepitism when I heard it this morning, hours before the market open. Well turns out there's at least some credit being given to Pandit's (Citi's CEO) comments about 'operating profit' through the current quarter sparking the rally.

So what's the truth? I hear 'operating profit' and I start thinking CEO spin...sounds like 'Operating cash flow.' Here's what I'm believing...Pandit doing his best to put a strong positive front out in the public without doing something that will get him time. So, when he says operating profit, he means 'operating cash flow' and turns out Citi has had positive operating cash flow for the last year. In fact the Q4 2008 Operating CF was 96 Billion. What this means it that Pandit states a common truth, the market takes it and runs and it avoid the true issue, which is likely that they will continue to suffer huge investment losses on things like MBS and other investment vehicles that are imploding.

Just my thoughts. But if you were day trading today you at least didn't have to dump at a loss at the closing bell. Thank you Mr. Pandit.

Sunday, March 8, 2009

Great regulation article

The Economist hits this one dead on! The article addresses the IMF's views on the financial collapse, which favors increased regulation as a response. The IMF proposes regulating based on the activities of the entity, not the entity itself (so include hedge funds that act as financial institutions the same as banks). From the accounting perspective this is classic rules-based versus principles-based.

At the end of the day, adding more regulations (like adding more rules in accounting) just means that institutions will find different ways to game the system. For instance, create a rule that causes a hedge-fund to be regulated like a bank if they receive over x% of their income from bank related activities and you'll be amazed how many hedge-funds suddenly receive x-1% of their income from bank like activities. It's always the same when you add're still a step behind.

See the IMF's report here.

Madoff Mess

Just got around to watching the 60 Minutes piece on Harry Markopolos and the Madoff scam. Check it out if you can.

More commentary critical of the SEC.

Saturday, March 7, 2009

Put this in the Theoretically Good, but Practically Flawed category

I like this idea in terms of enhancing the value of accountants by including an economic perspective. However, add this to the list of inefficient and ineffective government oversight that will eventually be exposed as just another too late to the table body.

I cannot believe that this is still newsworthy! Is there anyone alive that doesn't understand that GM is on government life support. The auditor's going concern is just a formality when you're business model is dependent on monthly cash infusions from the government.

Friday, March 6, 2009

JobsintheMoney's CareerWire: Crisis Seen Lifting Accountants' Status

JobsintheMoney's CareerWire: Crisis Seen Lifting Accountants' Status

Blame to spread in the Financial crisis

Seems like everyone is looking for someone to blame for the financial meltdown. I've started to think critically of my own profession and wondered did accountants miss the call? Is there something else that accountants could have done to reign in the leverage and exaggeratedly positive pricing models? Hard to find much supporting my suspicion, so I guess I'm on my own. What I do know is the as accountants we typically spend so much time focusing on minute details of accounting standards, I blame this on the last accounting crisis (post-Andersen and Enron and in the time of Sarbanes-Oxley), which focused accountants attention of very specific controls in the financial reporting process. However, the true risk that was missed was the larger (step-back) view and using a more holistic approach to assessing the overall business strategy of companies. In this the accountants may have dropped the ball again and the only thing people care about is mark-to-market!

So here's the end game...the accountants need to focus an equal amount of attention to being a trusted business advisor as to being a strict arbiter of the accounting rules.

Some accompanying reading...on economists missing the call and some mark-to-market reading.