Thank you. I will need to reread it now.

Thank you. I will need to reread it now.
Nova | 01.19.08 - 10:26 am | #

You think? LOL
Need MUCH more coffee.

"MBIA's surplus notes plunged as low as 70 cents on the dollar yesterday, indicating a yield of about 25 percent, traders said.

Maybe we've all been a little naive about these surplus notes. Maybe it was just a backdoor bail-out attempt by a group of Wall Street firms. Were any of these notes actually sold to investors, as opposed to underwriters? Maybe not.

In other words, the underwriters were expecting to lose money on the notes but figured to make it up on the back-end when MBIA pays out on the collapsing CDOs and CDO-squareds.

OT

To all the bearish investors here, I'd like to say "be careful" in the weeks ahead. So far, this decline is tracking dead-on the one in 2001-02 but moving faster.

There were three significant and sharp mini-rallies in 01-02, all retracing more than half the previous declines. In a real bear, the market grinds relentlessly lower, interrupted by bursts of hope. Charts say we're due a mini-rally in the next few weeks.

But long-term, the way 2008 has begun and unfolding events say this bear market, in total, could be as severe as 01-02 and affect broader market sectors and countries.

A year from now, the economy will still be in trouble and we'll be talking about how to shore up small/regional banks and bail-out FDIC. Keep enough dry powder for the whole bear.

The First National Bank of Tanta has been approved for a federal bank charter from the FDIC and is now open for deposits. Additional information about the board makeup will be announced soon. Thank you.

--
Thank you, Tanta, to focus on my favorite subject, or pat peeve – Accounting. America’s looming downfall, from which it will NEVER recover, has a lot to do with accountants turning into whores, or turned into whores via political pressures and lure of all might dollars. One of the great bulwarks of Anglo-American dominance was high degree of integrity in accounting and fairly high standards of conducts among banking officials.

My son was the most decorated accounting graduate in SoCal in 1998 (I thought that it was earlier but I just checked with my son) and as a result I got to seat the table with seven most influential finance men in SoCal (finance chiefs at Sony, etc.). They are agreed, off the records, that there was lot of room for accounting ‘discretion’ to manipulate the results for few years, say up to seven years. The most obvious, they pointed out, was the treatment of inventory. What else is new!

Later the same year I invited my son and three other young accountants for lunch. They all complemented me by saying in unison, “You were right about what you said about accounting practices.”

Father of an accountant, son of an accountant & all-purpose businessman, and grandson of an accountant and self-taught lawyer,

Jas

PS: In may family, integrity & morality of conduct mattered over money without any doubts or questions. To dopes it is the legality, bereft of any morality, that matters. Genes & upbringing matters! Dopes breed dopes and the process terminates badly.

Whoops, I see that Lama woke up and explained that already. Sorry. Great job, Lama!

This is a great post. Congratulations to you all.

lama, bacon dreamz, Tanta, thanks.. I'll need to read that several times to get it. In the meantime, some clarifications please about the following issues for this algorithms-conditioned mind:

Accrual accounting means you recognize revenue when earned, expenses when incurred. A gas station would not incur an expense when they purchase gas for resale. That station would incur the expense at the time the gas was sold. That’s because the gas’ cost was a cost to produce the sale. In the time between the purchase and subsequent sale, the company holds the gas as inventory as an asset on its balance sheet.

So, am I right in thinking that the other case mentioned, the revenue was earned at the same time, that is, also when the gas was sold ? {Sorry to sound dumb, but the dangling second case stands out to me, like dangling participles to English majors I suppose ).

And since you bring up inventory, what happens to the accounting for that ? I mean it didn't mysteriously appear in the underground tank, you paid for it right ? at delivery or perhaps pro-rata as each gallon is sold ? But we just called it the cost as well - I sense double counting here - I'm now thoroughly confused.. Help!

every asset on a balance sheet has a base and a reserve. The base asset value is the easy part. If someone borrows $100,000, you have a schedule with the $100,000 on it.

What is a schedule ? Is that the same as a balance sheet or a single row on it or ??

Thanks much.

-K

They both tried to make parallels with RTC. But there was a significant public interest behind RTC, bailing out federal deposit insurance. There's no perceived public interest here.

Oh yes there is - the muni and and biz capital markets. They absolutely rely on insurance to sell bonds. You'll see a very significant tightening of money available to them if the insurers fail.

It wouldn't be a 'bail out' so much as a 'mop up' afterward... at least until somebody financially healthy like Buffet can step back in to provide a market solution. There isn't likely to be one for awhile if all the insures puke on CDO insurance.

And the crisis is moving much faster than Washington can move, anyway.

Very true. If there is to be an RTC like solution it has to come AFTER the insurers fail (like in the S&L crisis)... The RTC-like institution would come in AFTER the insurers default and pick up the insurance liability on only those accounts where there is a clear public good to see insurance continue - primarily in the muni world & small business.

Hell it would take gov't a year just to figure out what to do next if they started thinking about it this afternoon. But a fresh new market alternative to fill the void will eve take longer. A temporary RTC like op could be beneficial if done right & executed well.

sk, the schedule is in some beancounter's hard drive. That's all. I guess after day one of the loan, the original loan balance is just a memo, an FYI.

Was this intentional or were they intending to sell them and got caught with a bunch of unsalable inventory?
Aheadofthecurve | 01.19.08 - 10:57 am | #

I think MER's problem is inventory. They were buying up a bunch of MBS tranches to turn into a CDO, and then the market for CDOs went away and they got stuck with this shelf full of loans they were treating as held for sale.
Tanta | Homepage | 01.19.08 - 11:04 am | #

As I recall, the story is even more tortured. MER at first didn't want to hold anything, just make fees off of securitization. That worked great; especially, demand for the lower tranches (with the highest interest rates) was very strong. An unsold backlog of the "best" AAA tranches built up, and in order to keep the machine humming and keep providing these high-rate securities, MER made the fateful choice to keep the "safe" AAA tranches on its books. The rest is history.

Dry, That would be alot of detail. Does this help?

Ignoring the equity section of the balance sheet (ownership, stock), you can look at it this way:

Debits on the Balance Sheet = Good
Credits on the Balance Sheet = Bad

conversely

Credits on the Income Statement = Good
Debits on the Income Statement = Bad

I'm back. I agree with Zirurrat's responses.

Come on lama, what's a Saturday morning without several pages of T-accounts?

Oh, and I posted a question last night on when was the last time the markets had a week as bad as this. The answer: July 2002.

U.S. Stocks Post Steepest Drop Since July 2002; Citigroup Falls - Bloomberg.com

I've got Tanta politely fixing my half-baked responses, and you want T accounts??
I need another coffee.

Ok I have to vent:
John Mauldin of buy-side consulting fame says today that Senator Dodd is playing politics by holding up Fed board nominations.

I sent him a nastygram saying that the Fed has politicized itself by choosing not to regulate non-depository lenders as it was charged to do by Congress. What does the CR community say, did I go overboard? Read below and give me your thoughts.
Thoughts from the Frontline

A temporary RTC like op could be beneficial if done right & executed well.

There will be no RTC-like op, which means a govt. takeover of assets/liabilities and gradualy workout using govt. guarantee/taxpayer dollars as guarantor backstop.

The problem is that there's two separate sides to this crisis.

Over the short-term, it involves massive hits to asset-backed securities and investor losses when insurer assets run out. Also, it involves ratings downgrades and irrevocable destruction of the bond insurance biz model. All that will be over before Congress can blink.

Then, you get part 2, which is "how can crummy towns and agencies get funding to refi" when there is no bond insurance to prop them up? Since defaults will happen if they can't refi, Congress will step in to create some hardship funding deal. But that's not until late 2008 or 2009.

re: Zigurrat

Thanks ! That explanation of inventory and its connection to cash produced an "AHA" moment. Cool.

This matching revenue and expenses biz - I assumed that they don't have to synchronous in time - in the example of gas sold, they are of course, as discussed earlier, but it doesn't HAVE to be so, is that right ? 'cos if it HAS to be then my mental picture has to change quite a bit.

Tanta - thanks for the Schedule explanation. Sadly, I do understand Schedules on my 1040.. sad ? I mean infuriated. As an aside perhaps the schedules aren't available to me since there might be trade secrets( which customer bought a lot etc ) discernible in there - or even, as my jaundiced mind would note, some shenanigans to be discerned by looking for the devil in the details ? I shall look at SEC reporting regulations a little harder and understand their requirements a little deeper in due course.

Anyway, I was stuck at that point in the post - I can now move forward.

-K

sk, in strict cash accounting, you would book the expense when you purchase the gas and book the income when you sell it. Sounds ok for a tiny cash business, but think of the home builders for example. They might start and finish a house in the same year, but sell it the next year. If you saw financials with a loss for the cost to build in year 1, then a profit in year 2 for the entire price of the house, that wouldn't really tell you what's going on.

sk, in strict cash accounting, you would book the expense when you purchase the gas and book the income when you sell it. ...If you saw financials with a loss for the cost to build in year 1, then a profit in year 2 for the entire price of the house, that wouldn't really tell you what's going on.
lama

So it DOES have to synchronous in accrual accounting then ! whereas it needn't be so in cash accounting. Right ? That concept, the concept of synchronous seems to be a key differentiator between cash and accrual accounting. I do need to adjust my mental picture then.

Sorry about belabouring the point.

-K

The schedules themselves are not sinister. It's the assumptions used to calculate the asset valuation adjustments that might be called sinister (or hilarious, depending on your point of view).

Did that monoline raise their capital? They had until midnight last night.

ugh

No answer to that from me and you won't see it in SEC filings either - I just looked - they filed a 15-12b on 1/16, which is a suspension of duty of file, and the reason is they now have only 61 shareholders of record - the threshold is 300 I seem to recall.

-K

sk, you've got it. One more thing, you can manipulate cash accounting as well. Having a good year? Don't want to share it with the IRS?? Just buy several months worth of stuff at the end and pay for it all on Dec 31st. Poof, there goes your income.
This is why the IRS requires some business types to be accrual based taxpayers.

quartz,
The accounting valuation would be based on defacto or assumed outcome, not the letter of the note. If the bank would expect a prepayment on 50%, they would book those loans as such. They would likely have to wait until the borrower actually prepaid to book the income on prepayment penalty. Conservatism...defer revenue, book future losses now.

Don't want to share it with the IRS?? Just buy several months worth of stuff at the end and pay for it all on Dec 31st. Poof, there goes your income.
This is why the IRS requires some business types to be accrual based taxpayers.
lama

I got reminded about this once upon a time when the software budget at company X, department Y, was wayy underspend and as April approached, I was really pressuring the DEC saleman to bill me NOW - we'll take stuff later. To his credit, he refused and as I told him about the calumni that will descend upon him, the secretary told me - "Errr. I think its illegal" - not the calumni but the "pay now buy later" concept.

I did get round it - interdepartmental stuff can be innovative but...

Of course, DEC did decline and fall in the end - though I'd like to think it was technology missteps not the honesty of their staff that caused it.

-K

sk, those big companies' departments work like government entities sometimes. Use the budget or lose it. I've shipped defects off at year end. I booked a credit to "Due to Customer" instead of a credit to Revenue on that transaction.

Write-downs reflect current estimates of future losses. The actual future can't be written down today because its not yet known (think ARM resets over the next 6 months). So the write-down process must proceed in stages. Those who are impatient with this must be impatient that the future hasn't arrived yet.

I'll behave.

Re: Some of you--bless your lovely hearts

Thanks for thinking of me dude!

Do any of the uberbrains here have anything to say about changes in maturity assumptions for the HTM portfolios? Average maturity was at one time in the low teens and more recently was in the 7-8 year range. What's been happening there?

David Pearson: There is no government commitment to the holders of insured debt. Imagine Congress creating that commitment!

If it happens I will be stunned, but I won't be surprised. Can we get a blog tagline?

Calculated Risk
Always Stunned, Never Surprised.

Tanta: How about, "We're all Insured Now."

How about, "We're all Insurers Now."

Great work, all of you! The CR Team is a never-ending learning experience.

risk capital: To me that sounds more like a magazine article. Nice and scary... jumps out at you while in line at the supermarket. The summer blockbuster is Counterparty. Next summer, it's something lighter... Counterparty 2 starring Chris Rock and Alan Greenspan as odd-couple Fed Governors with comically different styles of regulation.

OT regarding:

credit analysts^reserves^estimates, HTM, HFS (what about held for investment?), etc, and all the great blog efforts there which are great

Any thoughts out there on BOA & Countrywide and how that accounting deal will shake out? The market thinks BOA overpaid, even with tax loopholes; what think?

Re: There appeared to be a big obstacle for a Countrywide takeover after the Federal Reserve approved Bank of America's acquisition of LaSalle in September. The combined bank grew to hold 9.88% of the country's deposits. Federal law prohibits a bank-holding company from controlling more than 10% of U.S. deposits after acquiring another bank.

But the law includes an obscure caveat: The 10% limit doesn't apply to federally chartered thrifts, meaning a bank-holding company may control more than 10% of deposits in the U.S. following a thrift acquisition. Since a Countrywide subsidiary called Countrywide Bank is a federally insured thrift, that may give Bank of America room to maneuver around the deposit cap.

Bank of America is the only bank that has ever neared the 10% deposit cap. Many seasoned banking attorneys were not familiar with the caveat, as no bank has ever tried to acquire a thrift to vault above the 10% limit.

"This could be the biggest loophole in the world," said Gilbert Schwartz a partner at Schwartz & Ballen LLP and former Fed attorney. It was unclear when or how the loophole first became known to the banks.

The Future of Real Estate: Countrywide Seeks Rescue Deal

Re Taxpayer bailout of bond insurers, I will paraphrase A WSJ article about W. Buffet's takeover of a Reinsurer.

"It took four years to whittel the business from 23,218 contracts (swaps & deritatives) to 197.
Doing so involved tracking down hundreds of counterparties including a Finland bank and a small loan co. in Japan. One contract was designed to run for 100 years.
We lost over 400 million on supposedly safe and properly priced contracts. If we had to do it in one month, who knows what would have happened?"

This taxpayer is terrified of a bailout which no one has any idea of the final bill.

.

"OT on a government bail out of bond insurers (as proposed by Jim Cramer and others):

These guys don't understand what the RTC was all about. . . . "

Oh, I think they do. They (in the rantings of Cramer) just want to see their own version of corporate socialism adopted.

He might as well be saying: "Losses are fine so long as they are the other guy's losses. When my book is hurting, the government needs to step in and cover my losses."

But, since socialism doesn't sell well here, we need a major impending event to prompt the desired action and that is the financial meltdown that will occur if mortgage insurers go BK and some banks fail as a result.

Well, excuse me, but I think we need to muddle through this problem without the government absorbing private losses in the process.

Hank and Zig, anyone, Tanta, et al

Pension reform and computer modeling and obviously risk management and accounting, ok... false and misleading discretionary adjustments, collusion....I know, no one cares, but look at a link if you have 10 seconds:

Hearing on Computer Model Investment Advice Programs for IRAs

[Notices] [06/20/2007]

Hearing on Computer Model Investment Advice Programs for IRAs [06/20/2007]

Re: After carefully reviewing the information received to date, the
Department has decided that it would be beneficial to solicit
additional information by means of a public hearing.

(however): The Department is also interested in knowing whether the scope of
relief from ERISA's prohibited transaction provisions afforded by the
statute is adequate to facilitate the use of computer-based programs
for IRAs should the Department determine that such programs are
feasible.

Attention: Computer Model Investment
Advice Programs For IRAs--Hearing.

Ok then, the heart of this matter, for those out of the loop, is the connection between DOL and the forces of evil, AKA >>> "underwriters" that are granted on-going exemptions relating to prohibited transactions...its a very long story, but it is worth time and of course, not related or on topic here.

Zig, thanks for those ideas above!

Ain't no party like a counterparty 'cause a counterparty don't . . . oh, crap.

Reuters - Recession creeps across U.S. Midwest states
Recession creeps across U.S. Midwest states
| Reuters

Having skimmed through these posts, I have concluded that Doc Holiday is talking to himself and calling himself Zigurrat. There are medications for that sort of thing nowadays.

OK, that does it. I gotta have a Mortgage Pig t-shirt.

OT

Chris Burba, Standard & Poors- "Any multiday or near-term upturn should be considered as an opportunity to liquidate any long-term bullish positions and initiate bearish positions in securities that pace the broader market," Burba wrote.

Go Bears!

Grumblings of a Bear Market

Moral Corruption & Bigotry In Accounting

People, or groups within a broader society, become aware of their environment and how it may affect them and they learn to deal with it or adapt to the reality as best as can.

I became aware of certain reality that I was completely unaware of until 1998 when my son and his friends were to graduate and start looking for jobs. My son’s best friend back then and now is a Pakistani (98%+ are Muslims as is he). There were also some other Pakistanis in the class. What was known to many was that persons of certain ethnicity would have little problem getting a job with the firms they wanted to work for and persons of certain ethnicity would have very hard time getting jobs at certain firms, especially, the Big Six (or it could be soon after it became Big Four). My son interviewed with Arthur Andersen and got an offer AQAP, fully expected, which he accepted. But, his best friend, almost as good in accounting but brighter than my son, didn’t think that he would have a chance so he was not going to waste is time applying for the Big Six/Four. Some professors, as it turns out, were also aware of the problem. One of them, a white Christian woman, called my son’s best friend and asked him to apply to Big Six of his choice (more than one if he wanted) before the campus recruiters come and she will make sure that he gets interviewed. Then she called people (I assume her former students) at Big Six and pressured them to interview this guy and make him an offer (he was that good, easily in top 2%). He did apply to Arthur Andersen and Delloite and did get an offer, a bit late, which he also accepted. But, it took a conscientious person with knowledge of the problem and willingness to intervene to get the “justice” done in one case. The other Pakistanis didn’t apply to the Big Six or any of the firms with certain names.

Everyone knows what later happened to Arthur Andersen. My son left when the firm was dissolved and had no problem finding another job. The Pakistani went on his own and is doing extremely well. I still have Arthur Andersen T-Shirt and sweatshirt that I wear occasionally.

BTW, do you know who came up with the ideas, or “schemes,” that Arthur Andersen recommended to its clients, including Enron? Bankrupters and Fraudsters of New York City! Most of the schemes originate in the real sin city in America – NYC. Even the supposed sin city is dominated by the former “Gangs of New York” and Gangs of Los Angeles, which were transplants from New York City. Las Vegas’s politics and the main business is dominated by these gangs who took control.

In our economic system, accounting is the barrier between morality and immorality when it comes to finance. The stock market was turned into the Scam Market because of the forced compromises that were made by accountants under political pressure.

The financial and gambling, or “entertainment,” gangs that dominate NYC, Vegas, Boston, LA, etc., will destroy Am

risk capital,

The largest stock loan guys have got to be

Goldman Sachs (the purchase of SLK made them huge in the clearing space)

Bear Stearns

Morgan Stanley

Citigroup

Merrill Lynch

and then the rest of the IB's

--
Some may enjoy this piece I wrote more than 10 years ago when I was working at Cisco. BTW, I had read all the three books that Prof. Briloff wrote about accounting problems in the US. Enjoy! -- Jas
-x-x-x-x-
Sermons for the Nerds

Sunday, May 03, 1998

Unaccountable Accounting!

Warning! The references to the female anatomy by Prof. Briloff were within the Generally Accepted Articulation Practices (GAAP) of the period. Those with today’s heightened psychic sensitivities might find them objectionable.

This time we look at another actor in this theater of the absurd, the rambunctious bull-market of the 1990s, the accountant, who has to bless the sometimes “doctored” or “made over” financial statements of the public corporations. At the end of the last bull market of 1960s there were Big Eight accounting firms, which have now become Big Five (the attempt at the Big Four seemed to have failed recently) in the present incarnation of the bull. The excuse is to be more efficient and to better serve their clients. May we hazard a prediction of the Big Two during the next bull market and, finally, with the return of Ceaserism, or Socialism, only one King Arthur, or Queen Aretha, with no more room left for wasteful duplication! It is nothing but a coincidence that my son, Kapil, who is graduating soon with accounting major, will start working for Arthur Anderson in July. Accounting runs in the family. I am the black sheep.

I have been suspicious of the accounting practices of several well-known companies for more than a year now. Two areas where I clearly saw intent to throw wool at the eyes of the investing public was in the drive for acquisitions (for things which could have been “acquired,” i.e., developed internally) and accounting of the stock-options-exercise expenses. Then, few months back, articles started to appear in the Barron’s, the WSJ and the NY Times about these subjects; e.g., the CFO of GE admitting to guiding and managing the earnings; Microsoft revealing $26B options liability for the coming four years (exceeding profits handily); and the Mickey Mouse accounting by Disney. The last was authored by none other than Prof. Briloff. Also, one anchor on CNBC confronted the CEO of Cendant Corp., Mr. Henry Silverman, whether he needed to continue acquisitions to keep the stock moving up by being able to “show” better earnings as a result of acquisitions? Mr. Silverman said, no, emphatically. Few weeks later the company lost $13B in the market cap in a single day when the news of accounting “error” relating to acquisitions was announced. Ever wonder how come these “errors” are never the other way around?

Prof. Briloff was a gadfly who never ceased to attack the fancy footwork of the corporate financiers and their natural accomplishes, the accounting firms. He authored three classic, but unpopular, books exposing the specifics of their incredulous performance, or lack there of. Let us have a peek at some ent

BEST PART continues...

“The phrase “game plan” implies a preconceived strategy for accomplishing certain objectives –and that Savoie sees management acting, with a helpful assist from their independent auditors: ‘In corporate financial reporting … the game plan is to show a steady rising earnings-per-share, thus stimulating investor demand for shares, with consequent rise in their price, and creating a favorable atmosphere for issuance of new securities in case additional capital is needed.’ …This means that where there is a choice of reporting methods (and we will soon be introduced to the plethora of such choices), ‘a strong inclination arises to choose the method which will produce the most favorable results.’ …Game plans come in two kinds –offensive and defensive. The offensive predominated during the late 1960s when the stock market was high, conglomerate mergers were commonplace and prosperity reigned. Game plans then were designed with style and finesse, using “funny money,” pooling of interests, deferral of research and development costs, stretched-out depreciation, front-end loading of installment revenue of doubtful collectibility, and so on. …Not everyone playing the game is a knight on a white horse, be he corporate manager or CPA. This fact becomes especially significant when a company is, as you might say, “shopping” for the accounting principles which best suit its game plan. The company’s present auditor may stand adamant against what the management wants to do, so management begins looking for an accounting firm that they hope will be more accommodating.

“We know the myth which prevails among masses of our society. They infer from CPA’s certification a nihil obstat [certification from a Roman Catholic censor stating that a work contains nothing contrary to faith or morals] and imprimatur; the masses assume that the auditors have pursued their task diligently and have ferreted out all aberrations with their gimlet eyes and red pencils; then, having discerned the good and true (even if not the beautiful), they proudly proclaim the fair presentation of the financial condition and operations of the corporation which they have thus scrutinized. These masses, with their trusting guilelessness, are confident that if the auditors failed to act consistent with this noble program and objective, then most assuredly the SEC, if not the American Institute of Certified Public Accountants (AICPA), would manifest its wrath, and would move diligently to discipline the scoundrels, possibly even to deprive them of their professional prerogatives lest they do further damage to the body economic. In fact, the realities are otherwise. No, in this context at least, God is not in His Heaven; sweetness and light do not prevail.

“But then, as Santayana informed us, we are destined to repeat the mistakes of history since we don’t read it. …I have first sought to describe those aspects of the corporate environment in which the auditor i

"With the birth of the so-called baby boomers America was turned into a Dope Factory!; hence, the term that I use -- Baby DOOMERS. They were BRED to lead to America’s doom and they will succeed. They have done all the hard work. Now, we just have to wait for the time bomb to go off. The trigger is the next depression."

Well, Jiz, that's a real intellectual contribution you made there. If those comments reflect the sort of values you taught the son you were fawning incessantly about earlier in this thread, he's probably not half the man you claim him to be.

cd

There is even speculation that it may occur on the Indian subcontinent from time to time
Tom Stone

LOL ! Say it like it is - and if data is needed to back that up -- hmm... lets start in the Bollywood field( The Kapoors, the Khans, the Dutts, the Johnny-come-lately Bacchans, then move on to the political field - the Nehrus( latterly known as Gandhis), the Bhuttos, then there are those industrial houses of Tata and Ambani to name a couple; all the way down to even a job as a tea-boy I'm sure.

Talk about the mote in one's own eye. Jeeeez.

-K

--
"...and independent auditors."

What country do you live in? More importantly, who make the rules that auditors can't challenge?

How about an "independent" President who can't be owned by Bankrupters and Fraudsters of New York City? LOL! Only a certifiable money whore can become a US President (I swore not to vote after 2000 election, even though I did vote for W and funded his campaign; it was the last made).

The problem with a thoroughly corrupt system is that all the important people get mostly corrupted. Then, we have corrupt persons being overseen by a corrupt bureaucracy (auditors are part of the bureaucracy). The problem becomes hopeless when people are turned into dopes so that they cannot understand the root causes and ENDLESSLY debate the details. Do you see what I mean?

Jas

Mr. Shark,
You are correct. Most accountants will tell you that the statement of cash flows is the most important of the 3 financial statements.
All business transactions cycle back into cash.
When I looked at Citi's income and then bloated balance sheet, I knew something was wrong. The statement of cash flows tells you what's wrong.

I'm off. Good night all.

If I can show the cashflows and risks clearly, the accounting is an afterthought.
Mr Shark | 01.19.08 - 8:41 pm | #

Perhaps "afterthought" is a bit strong, but this reinforces the first lesson of running a small business: cash is king. Get that wrong, and nothing else matters.

Lama, an explanation of understanding cashflow statements next would be a nice follow-on. Thanks!

Gee, Citi waist deep in the mire again.

Hoodagest?

Have they come out on the right side of a trade in the last 400 days?

NY Times - Fear, Greed and Alliance Data Systems
Fear, Greed and Alliance Data Systems - DealBook Blog - NYTimes.com

OK, every once in a while somebody intelligent presents an interesting bull-market case. See Louis-Vincent Gave on Financial Sense Newshour (tonight's eddition).

Ask the Expert 2008 - Financial Sense Newshour

I disagree with him, but at least he makes some coherent arguments. However, in my mind he fails to give enough weight to the main force at work in this financial climate. Namely, the collapse of the largest credit bubble in history. Calling US equities undervalued due to their strong earnings is kind of missing the point. Their strong earnings are about to disappear as their driving force disappears.

1) That there's any chance a "bailout" would actually change where we're headed; and,

2) That TPTB would have a clue as to what's "best for everyone". Hitler, Stalin and others always claimed to be working in the people's best interest. Furthermore, TPTB are the characters that got us into this mess.

Tj Agreed, but I think we are headed there. BTW thanks Lama. I appreciate your work.

Gravatar I did vote for W and funded his campaign... --Jas Jain

What the hell were you thinking?

The fact that American let W into the White House (and even let him stay for a second term!) tells us how corrupt this country has become. It also foretells the bleakness of our future.
unirealist | 01.20.08 - 1:26 am | #

unirealist - that's a little strong. I'd say the fact that our options as voters the last two elections have been W vs Gore and W vs Kerry leads me to think there is something very wrong with our political system, and I don't see any prospect for much improvement in the next election.

Carl- I'm not sure I understand that FDIC chart any better than you do, but the non-seasonally adjusted non-borrowed reserves total being negative scares the crap out of me. Did anyone who followed that link have a less disturbing explanation for what it means?

@MattJ:"...the Fed chart showing non-borrowed reserves at 200 million has not yet been explained by anyone here as far as I've seen. Someone did at first suggest a clerical input error, but the WSJ ran it as is, also."

I don't think it's an error. The FRB has added a column for the TAF credit, which isn't reflected in the WSJ page. The total reserve of $41577 million is the sum of 200 non-borrowed, 40,000 TAF credit, and 1,377 total "other" borrowings from the Fed. Clearly, if you look at the Dec 07 (monthly) and Jan 2 08 (weekly) numbers, the same methodolgy was used...TAF credits are being used to offset NBR as part of the total depository reserves.

FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009 

So is the whole banking system now subprime??

cd

I have mixed feelings about Ron Paul

but,

here's a relevant article about non borrowed reserves at a supporters site.

seems to somewhat intelligently explain some of the dynamics behind the plummeting reserves at depository institutions.

Has the Bank Bailout Begun? — Non-borrowed Reserves Turn Negative for the First Time! | Ron Paul War Room

The gaming data is amazing; Laughlin has a 7% drop in visitors, yet gaming revenues are only down .1%. The Boulder strip numbers suggest the local casual gambler has really cut back but the degenerate gamblers still hang out on Fremont St.

And there's another reason for no bailout -- the inability of ratings agencies to deal with the crisis in real time.

Imagine you're a Congress person and some lobbyist comes in your office to beg for a taxpayer bailout of Triple-A rated bonds by S&P and Moody's. How fast would you put a boot in his ass?

Probably half of them don't yet even realized they face a big problem.

They will know soon.

For example, John McCain has ZERO chance of winning a Presidential election in November, because he is so closely tied to the Iraq War, is too stubborn to change position, and by November most Americans will know that continuing in Iraq = going broke as a nation.

If I were in Vegas I'd take McCain vs Hillary any day... heck I'd even give points (electoral votes). They both have problems with support of the Iraq issue. They both have strong pro-establishment corporate positions... but McCain isn't a Clinton & I believe 'Clinton fatigue' will hurt Hillary big time.

If Bloomberg steps in as an indy I'm even more certain McCain wins - in that case I can't even see Hillary winning NY state - Hillary & Bloomberg split NYC & McCain takes 'Up State' and suburbs - winning.

The only caveat is Ron Paul... if he runs as an indy then some of the western states that McCain would count on might 'split off' from GOP. I don't see RP running indy though... I see RP going back to the HOR instead. Or off into the sunset...

Hillary has better odds against some of the others, say Huckabee or Romney. The other GOPers are toast as are all the other Dems besides Obama.

The most interesting match up would be Obama vs Huckabee - I have no clue how that would play out.

JMHO.

Clinton/Obama vs McCain/Hucabee Dems win because of recession.