It’s an interesting time to be in the UK, where the Mother of All Parliaments, the House of Commons, has been roiled by infighting and discouraging economic news.
The Chancellor of the Exchequer ignited a firestorm of protest last week: see Chancellor Alistair Darling warns slump could be the worst for 60 years, precipitating a slump in the Pound Sterling and a furious debate over whether he acted irresponsibly or not. In many ways the entire thing -including debating whether government ministers ought to be blunt or Pollyanna-like in their official statements, the reliability or unreliability of official statistics, the question of whether the chief executive should take the fall to prevent the decimation of the party- sounds eerily familiar and because of that, oddly comforting.
The Brits are working through issues not very different from our own and it seems to be there isn’t all that much of a difference between the way British and Filipino politicians are trying to do damage control: orare ignoring public opinion altogether while politicizing previously relatively partisan-free civil service institutions.
The Times in a recent editorial (which came at the heels of the paper’s report that a sacking was in the offing), The twilight of Sir Ian Blair, looked at the controversial head of Scotland Yard and took him to task in all-too-familiar (for Filipinos) terms:
His responses are by now well practised. He believes that near-constant pressure to quit is an occupational hazard to be shrugged off if not actually ignored. And he believes mutinous disloyalty from senior colleagues is an inevitable result of radical reforms of which he is fiercely proud.
The trouble for Sir Ian is that his reforms have not made him indispensable. Nor can he be sanguine any longer about the calls for him to go. His support from the Association of Chief Police Officers and the Home Office has crumbled: his contract will not be renewed in 2010. This makes him a lame duck not only in the view of his many critics, but in fact. If his record were spectacular, this newspaper would back his bid to stay in office until the 2012 Olympics and beyond. Unfortunately, it is not.
What sets the British media apart from our own is the deeper sense of memory, whether institutional, national, and personal, that the media, the politicians, and commentators have. For example, Libby Purves in Why did Alistair Darling choose 1948? points out a fascinating detail, concerning 1948 as a watershed year for Britain despite postwar austerity:
The disreputable anomaly of plural voting was abolished – previously university graduates could vote in two places, and business owners had an extra vote at their place of work.
The odd thing of course being that there are frustrated middle and upper class Filipinos who continue to think plural voting might be a good thing.
The business and finance media, too, write clearly and informatively, something hardly ever seen at home. The Business Editor of The Times pens an analysis: This slowdown has a long way to go yet — so just look forward to the sales. And there are short, but richly informative reports that contextualize the economic news. An article Is the party over for pubs? points out British pubs are closing at the rate of four per day and also ties in the various economic trends (crashing property prices, increasing food and labor costs, etc.) into the uncertain future of a British institution.
In Britain 2028: we need ten new cities, please, Camilla Cavendish looks at the immigration policies of the UK, something that ought to be of interest to Filipinos living and working here.
Just today, Gordon Brown to increase Holyrood’s tax powers focuses on the great Labour project of restoring the Scottish Parliament and increasing its powers over taxation and budgeting: again, this ia a debate erupting in Britain which should be interesting to proponents of Federalism.
Update: Only Blair could save Labour now provides an insight into how more “mature” democracies factor surveys into the political situation, and how past and present leaders can add and detract from their party’s future prospects.
A great pleasure is reading the obituaries published in the British papers. See K.K. Birla: industrial tycoon and philanthropist.
The major difference between retrospective accounting and prospective accounting is this.
CPA’s deal with empirical historical quantitative data. The past-
Financial quants have to deal with probability based accounting or prospective forecasting into the future.
The thing called the future
Vince Lombardi for the uninitiated always said that no one ever loses in a game. You just run out of time. For him winning was everything. He was an A type personality. So in his mind he rationalized that he never lost. He had a very optimistic will.
Once again when no one will lend you money based on the present deflation of assets behind bonds that you have to refinance the root or in Filipino “ugat ng problema’ is asset deflation after a cheap credit induced asset inflation.
Once again I repeat – the word credit is from the Latin word ‘credo’ and the fiat currency system in essence is a faith based system.
No Confidence in Filipino means ‘walang tiwala.’ I do not know the word in Visayan or other tribal languages.
The markets belief system was a vote of no confidence. The Fed was not about to subsidize another JP Morgan buyout like Bear Sterns. Everyone who wanted to buy AIG wanted the Fed to support its buyout. This included Greenberg.
For the ignorant – the Fed is a government sponsored private corporation. The head of Lehman was a member of the New York board of the FED. Its stockholders are all the banks and financial institutions of the U.S.
Insurance companies until a few days ago were not members of the Fed Reserve. They are regulated by States.
U.S. law is obviously re-constructionist. In times of crisis the Fed can create its own rules. It granted a loan by taking 80% equity position in AIG. It also has veto power and fired the head and placed its own man. Greenberg the old fox tried one last scam he lost.
Like I said Pinoys are personality oriented and not institutionally and legally oriented to institutional frames.
This problem is systemic and structural. But how do you explain that to people who don’t know what it is to think yet?
This is how a command state operates… In times of crisis……..
“Dodd Says the Fed Has Authority to Set Up Debt Fund (Update2)”
By Viola Gienger
“Sept. 17 (Bloomberg) — Senate Banking Committee Chairman Christopher Dodd said the Federal Reserve can act as an “effective Resolution Trust Fund” to buy and dispose of bad debt stemming from the subprime mortgage crisis.”
“The Fed has the authority to move in this area,” Dodd told reporters in Washington today.”
“Creating a separate agency to take on bad debt, akin to the Resolution Trust Corp. set up in 1989 to absorb losses from savings and loan associations, would take about a year, he said. Instead, the Fed should use its own authority to act.”
“Debating whether or not you’re going to set up some new agency or bureaucracy in government is a nice point, but I don’t think we have the luxury of waiting another year,” Dodd said. ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=axN7il2n3WO0&refer=home
Using that analogy to the Philippine scenario….. and the Philippine budget process and fiscal and monetary policy…
We implicitly have a unilateral President almost totally in charge of the public purse. Almost no oversight….Congress has given up the power over the purse as if it does not enact a budget then the President gets to work on the previous one.
Plus the unilateral President has the automatic appropriations act. Congress has no oversight on the countries debt issues and the President is free to take on debt without Congressional approval.
GOCC’s are not under Congressional oversight. Their debts are all off-budget. This includes the BSP….
Halos lahat ng Pinoy ay tanga pa.
Got it Cat, thank you, thank you so much!!!
Havent read much today so wala na muna akong tanong.
I know what you are driving at. If you do not knoe much about quanti and actuaries in relation o mortgage topics and insurance annuities, do not start with me. i can discuss with you present values , interrnal rate of return, discounted cash flow rate of return and WHEN THEY ARE USED IN ANALYSIS.
But these are not the ratios used to evaluate the financial condition of the companies. THEY are just the ordinary accounting ratios to measure profitability; ROE, ROA and ROI.
to measure liquidity; current ratio: acid test ratio and the solvency which is the debt-equity and total liabilities over total assets which are the leverage ratios that are being discussed now.
The day to day stock market relies heavily on actual past performance of the companies. they see the trend based on the perforamnce and not on the projection.
we do not extrapolate. it is done only when making projection for budgets which are not necessarily a part of the basic financial statements required by the SEC for monitoring purposes.
That is why financial statements are certified by the CPAs to present fairly the financial position of the corporations as of a a given period or for the quarter or year ended.
. CPAs have their quantitative analysis, managerial accouting and economic analysis subjects, so do not teach them to when and how use quantitative when they are not needed in the discussion.
So your point is? in addressing the CPAs?
“The greed theory encourages the people at the helm to hire people which have virtually no conscience, no loyalty, no emotion,as long as they make money for the company and they were mostly the fastest rising stars in the last few years until their efforts result into destruction of the economy and the lives of people then they cry for the help of the government which they hate in monitoring and controlling some of their activities”.-Cat.
So true! And unfortunately there is no law that requires these people to return the fat bonuses they received when the instutions went bankrupt.
Monsoon, thats was a very nice additional info. Thank you, too.
Present day accounting rules state that all assets have to marked to market. Under Basel II rules.
What would happen if all banks would have to mark to market their holdings of bonds and equities in a collapsing market??? Equities are tanking and bond prices are going up as more people move to safety. Spreads on overnite funds for banks are opening up like a black hole….No one is lending.
Can any CPA project a definite date in the future to mark the bottom????
Can any CPA effectively categorically say at what stage the deflationary cycle is in? Is it close to the start the middle or close to the end????
Try pissing in the wind and see which direction the piss is flying…
Micro economics is singular business. Macro economics is the system and structure on which the micro thrives.
A CPA knows micro. Historical. the evolution of macro economics destroys micro and creates new micros based on the macro.
Where is Enron, Arthur Anderson, Bear Sterns, Lehman and Merrill Lynch. AIG is on the way out….Who is next?????Can a CPA’s projections predict who will be next?
We are in the midst of a massive destruction process. Can any CPA advise on the where we are in the degree of the destruction process itself??????
If one can come close to the probability of when, one can make a fortune.
We know about how hurricanes are formed and what fuels them….
The carnivores are there so with the scavengers and vultures.
One most certain fact we know is the disturbance has forced the state to become proactive….. to try minimize the turmoil that the spiral downward is causing.
Can the CPA’s of the world stop the spiral downward? Can they influence the collective consciousness of the world that count????
Oh wow its good to see HVDRS finally replying to the comments here. I did not even address my question to him. I actually have been ignoring all his comments by not caring to read even just one line. Until now. Kaya lang ang yabang talaga ng dating, grabe!!!!
balik ko kaya ang tanong sa kanya. what can HVRDSs in the world can do about the current crisis?
The Federal Reserve is now the largest financial services corporation in the world.
Mark the date when they first took over Fannie Mae and Freddie Mac and now AIG and the countless banks that they pumped in funds.
It is not over yet. They will soon buy a large portion of the mortgages that went bad.
“For years, accountants, rating agencies and Wall Street executives decided to shoot craps and collect fees. Regulators, taking their cue from a distracted President Bush, took a nap. The two M’s – Money and Me – became the lodestones of the zeitgeist, and damn those distant wars.” Roger Cohen, NY Times
If the HVRDS of the world were in charge, there wouldn’t be a ‘current crisis’. (some other crisis maybe, but not the current one we’re having.)
It’s happening….
as Keynes had said -the liquidity trap. The flight to safety has started and credit markets are seizing up.
The herd is rushing out looking for safe havens. Treasury yields are dropping like a rock.
Now this is scary.
I think between someone who claimed that the USPS was still using P.I. (when it was shown that it wasn’t)
….and a CPA with a phD in economics, I’d stick with the CPA on this one…
It is the CPAs. which protect the public by presenting the assets in their book value or fair market value . After the Enron, the CPAs are pressured to take a look at the financial reporting of companies.
Enron was one company which bloated its assets particularly its investment portfolio by reporting contracts in future values using the sophisticated software which generate values that even actuaries will have a hard time
deciphering them.
Present reporting standards require the financial firms to mark down their assets when there is a decline in value.
For some people, they are against these rules because it affects the whole picture of the financial condition of the corporation which are selling its stock to the public.
When assets are marked down, there is a corresponding
decrease in the right side of the accounting. That is the Retained Earnings Part of the Balance sheet.
To look into the AIG case, one has to consider the whole empire which is not only insurance. The worst that was hit was its subsidiaries which are also into financing.
Its problem is liquidity which in accounting parlance is a problem of not being able to meet SHORT TERM OBLIGATIONS.
When I withdrew my annuity from AIG, two years ago, my waiting time was 90 days which was SOP. It could take longer these days.
What can an hrdvs do who merely linked and repeat opinion of other writers?
The prices of the house during the boom were overpriced.
Now it is reaching rock bottom and somewhere, someone is making a killing of buying these houses at give-away prices holding these for awhile until the dust settled, then the cycle continues
What I am waiting for are the results of the silent investigations of the white collar criminals who instigated the subprime mortgage meltdown–the realtor, the lender, real estate agent and yes, bank and mortgage companies execs who tried hard to hide the crisis until it caused the shakedown in the Wall Street.
Maybe the white collar criminals fled to P.I.
It’s hard to get convicted in the P.I. even if you are caught cheating.
😀
The problem is that it wasn’t any single illegal act of even groups of illegal acts that broke the system (which does not mean that there were no such illegal acts). The problem is that the system was set-up to fail by generating a bubble that cannot be sustained. Same with the dotcom boom/bust, the Asian Financial Crisis in 1997, the Japan Bubble that ended in 1989, the 1920 stock market bubble that crashed in 1929 resulting n the Great Depression and other such previous bubbles. There’s a built-in flaw in Capitalism’s architecture which was made worse by financial liberalization.
cvj makes sense than hvrds the greek 🙂
to make an informed decision at personal level and how to make money and be financially stable,
understand the two:
history: “The problem is that it wasn’t any single illegal act of even groups of illegal acts that broke the system (which does not mean that there were no such illegal acts). The problem is that the system was set-up to fail by generating a bubble that cannot be sustained. Same with the dotcom boom/bust, the Asian Financial Crisis in 1997, the Japan Bubble that ended in 1989, the 1920 stock market bubble that crashed in 1929 resulting n the Great Depression and other such previous bubbles. There’s a built-in flaw in Capitalism’s architecture which was made worse by financial liberalization.” by cvj
and understand..
future: “Financial quants have to deal with probability based accounting or prospective forecasting into the future. The thing called the future.
Vince Lombardi for the uninitiated always said that no one ever loses in a game. You just run out of time. For him winning was everything. He was an A type personality. So in his mind he rationalized that he never lost. He had a very optimistic will. ” by hvrds
🙂
This ain’t over yet. Accountants, start looking for those companies who still have not marked-to-market the assets that have the overpriced values from 3 years ago. also look regional and local banks that have balance sheets loaded with loans to local developers and builders who will be hard hit by an economic downturn.
I again repeat to those who will cast their votes in the November2008 USA elections. McCain’s economic philosophy includes laissez-faire deregulation deregulation removal of government oversights. AIG and Lehman now forcefully requested government bail-out. Forcefully. With the same intensity that AIG and Lehman told the government to butt-out from looking into the risks to the US economy of their practices — 30-to-1 leverage and credit-swap instruments plus the contracts they were writing.
Enabling legislation — Gramm-Leach-Bliley Act. Phil Gramm : economic adviser to old-man McCain.
Misstatement of accounts in the balance sheet or income statement that would affect risk evaluation and cover up fraud is highly irregular and is an illegal act.
So what illegal acts are missing in this scenario?
Enron execs were indicted and convicted because of this fraud (the term used in the corporate world) a corruption in the government institution.
Submtting doctored documents for loan approval by fly-by-night mortgage companies is highly irregular and is therefore illegal.
these predatory-fly-by-night mortgage companies which sprouted like mushrooms during the housing boom resorted to brazen tactics and illegal sales acts like
•Offering thousands of dollars in cash without disclosing that the money would be used to cover exorbitant fees of up to $20,000.
•Failing to provide copies of signed documents and appraisal reports.
•Falsely claiming that the customer’s monthly payments included payments for taxes, insurance or pay offs for other debts or that their monthly payments would be reduced.
•Failing to honor requests to cancel loans.
If you are surprised why a former matinee idol is back in the phils to face his old cases, i think he prefers that instead of going back to this real estate mess where it takes a village to con a non-speaking English home buyer.
“If you are surprised why a former matinee idol is back in the phils to face his old cases, i think he prefers that instead of going back to this real estate mess where it takes a village to con a non-speaking English home buyer.” Cat…
What cases are you talking about? The filmfest scandal of which this matinee idol was involved was the handiwork of his Manager, Ms. Solis, and he was totally unware of this scam and it was already settled.
Inasmuch as you mentioned “cases” i think people in this blog are entitled to know them and not simply allude to them in gratuitous claim.
And what’s wrong with a career retrofitting? If there is a real estate mess in the U.S., what’s wrong with leaving it and try his luck in acting just to make an honest living?
Is showbiz, another one of your forte, aside from being a financial whiz, accounting whiz and “ad hominem whiz? 🙂
“It is the CPAs. which protect the public by presenting the assets in their book value or fair market value . After the Enron, the CPAs are pressured to take a look at the financial reporting of companie”.
It is also the in-house CPAs that made the fraud possible in the case of Enron. 🙂
‘Illegal acts’ are not the reason for the financial collapse. Rather it is the process of securitization and re-securitization of loans into more and more complex investment vehicles with the investor ending up not knowing the underlying value (and risk) of the investment. This practice may have been driven by greed and stupidity, but not illegal. Most of all, the Wall Street folks have been guilty of what Nassim Nicolas Taleb calls epistemic arrogance.
In a way, the vast improvement in information and communication technology enabled huge securitization, complex derivatives, and more and more complicated bets in the market which fueled insatiable greed but removed basic common sense. Long Term Capital, Enron, Sub Prime, etc. they’re all in the same business bubble.
enron was blatant fraud. they claimed to have assets that didn’t exist. insider trading was rife. ‘securitization etc are euphemisms for lying.
these are illegal are they not?
cvj,
epistemic arrogance. that’s new and quite frankly will constipate me. i will go with the classification of the cat that these are illegal acts.
illegal because there are well-defined accounting procedures that were not followed. bloating up the financial record with gains instead of reflecting them as losses, classifying as long term receivables as current assets, and the winner of them all, declaring equities as cash “dividends” ??? 🙂
Nash, securitization per se is legal, although as shown in in slides 11 to 19 of this primer, it is underhanded because it has the effect of deodorizing risky loans. It’s like a legalized pyramid scam.
Jcc, ‘epistemic arrogance’ is the difference between what someone actually knows and how much he thinks he (or she) knows. It’s a common trait among Wall Street-types. A few months ago, Manolo featured Nassim Nicolas Taleb’s book ‘The Black Swan’ where the latter talks about this at length and explains why institutions such as Bear Stearns, Lehman and AIG can collapse in the manner that they did.
We’re it just a matter of illegal activities, then things would have been simpler and straightforward. Just arrest the bad guys. The problem is, most of the activities that got these institutions into trouble are legal by virtue of the deregulation of the finance industry. The number crunchers thought they could manage the risk but , as Taleb feared, it turns out otherwise.
”most of the activities that got these institutions into trouble are legal by virtue of the deregulation of the finance industry.”
well if you insist.
…let me just put it this way, enron used legal acts to hide their fraudulent (and illegal) activities…
Nash, i agree that we couldn’t discount such practices but i don’t think the current batch of failing institutions had to go that far. As UPn pointed out above (at September 18th, 6:00 am and 8:48 pm), what made this possible was the enabling legislation, i.e. the Gramm-Leach-Bliley Act of 1999. There is also the Commodity Futures Modernization Act of 2000 (also authored by Phil Gramm).
Enron made very risky energy futures investments off-balance sheet and reflected such as receivales, when in fact they represented a drain in capital. Their accountants, Andersen, was said to be in the know but certified the financial statements anyway. When Enron imploded, it brought the accounting firm with it.
“if retained earnings at the close of the year are considered equity already, they are no longer part of surplus which can be declared as dividends”
Jcc,
Alam ko alm mo na ito.
The balance sheet and the income statement are connected and related .
The higher the net income the higher the equity in other words they are directly proportional.
paying dividends are ways of increasing leverage,because you can borrow more.
I know its crazy but it’s true.
It’s crazy because instead of reinvesting the income as retained earnings and more equity some choose to pay dividends instead;just so they can borrow,or they increase thier borrowing requirement.
some still pay dividends and leave some for the retained earnings,thus proving your point above.
and take note the cat is correct that retained earnings accumulate.
you may want to look at this statement differently.
“from the viewpoint of the stockholders, the high debt ratio is favorable for them. the finance whiz in the corporate management is using other people’s money instead of their equity for their dividends –cash or stock .† the cat.
Just look at it this way.they pay dividends to increase borrowing requirement.(leverage)
MUCH ADO ABOUT something.
“When Enron imploded, it brought the accounting firm with it.”
Andersen is still around they changed their spelling to ACCENTURE.
KG,
Only in RP or P.I. Andersen was SGV’s parent company. When Andersen was dissolved in the U.S., SGV associated itself with Accenture.
“credit risk to a group of credit rating agencies, paid for by the issuers rather than the buyers of bonds.”
credit ratings assess the ability to pay,by assessing the history of current assets and current liabilities.
Imagine each buyer of the bond have to gather and form a group and pay FITCH, MOOODY’s or S an P then that would be an additional expense an additional inconvenience.
magpapautang ka na nga gagastus ka pa.
when you buy bonds you lend money.
Come on!
11:57 is based from a link by cvj
kg,
thanks, i am using equity as understood in legal and accounting term. it is part of the worth of the company as represented to the third party or to the world.
equity cannot be dissipated and declared as cash dividends because you were short-channging third parties that relied on your representation that your company is worth that much. and to me declaring retained earnings already classified and represented as equity as cash dividends for distribution to stockholders is illegal.
it is simple as that from my perspective. 🙂
because just like Mr. PI, the celebrity refused to acknowledge the truth that real estate was down in the US and it just so happened that his co-workers in the real estate are also out broke.
equity cannot be dissipated and declared as cash dividends because you were short-channging third parties that relied on your representation that your company is worth that much. and to me declaring retained earnings already classified and represented as equity as cash dividends for distribution to stockholders is illegal.
Sez who? what are you smoking? What book are you reading. Even the books in your year when P.I. was still the name of the Phil. in the international community…hohoho
do not say that dividend declaration is illegal.
Do you know that Retained Earnings are further classified into Unappropriated and Appropriated?
The Appropriated are the ones not available for declaration of dividends.
So if you cannot declare dividends what do stockholders expect from the corporation.
I am receiving dividend from an insurance company.
Still trying to impress Mr. Lawyer? or Dumdum king.
So you changed your previous statement that only cash dividends are declared. hahaha.
Make up your mind. I bet you can’t because you really do not.
know.
Ha?
For ignorant people, this is trivial, for those who can understand, this is additional knowledge. i think you are not contributing something new here in the forum. on the contrary, you are insisting your wrong information.
Philippines na hindi na PI. And dividends are declared out of retained earnings. Tingnan mo ang entries ko.
What about you what are you entries if you really understand Corporate Accounting?
the comment above is directed to Mr. PI.
‘Andersen is still around they changed their spelling to ACCENTURE.’
Accenture is an information technology company that used to be called Andersen Consulting. Arthur Andersen, the accounting firm, is still around.
“Raw capitalism is dead.â€Â
As soon as the average-Joe-minimum-wage-earner-turned-real-estate-investor was also using Wallstreet-Ivy-educated-whizkids’ risk-free business model of “other people’s money†– party’s over.
Only a fundamental change will fix this fundamental mess.
Republican Bush, Republican Cheney….
so is 4 more years of a Republican in the White House a step towards “fundamental change”? 😛
technically you cannot declare dividends out of your equities, whether as cash or stocks. i said may agree with you if they are declared as stocks because they do not leave the corporate assets, and that position may make sense.
P.I. for Philippines, sirang plaka na iyan.. humanap ka naman ng ibang isyu. and you think you have contributed too much for this blog?.. were you given dividends for contributing so much. 🙂