Losing the game? Change the rules!
by robert on Nov.08, 2010, under Banks, Economics, Politics, Recovery
Criminologist William K. Black has done extensive research into the cause, effects, and response of the financial crisis, and put together a list of nine fascinating and horrifying topics that the media has largely ignored. All of Black’s nine items relate directly to why the financial crisis happened in the first place, and offers a lot of insight as to why it’s still happening now.
Today, I want to focus on one of the things that Black reports: the changing of FASB rule no. 157. At this point, many of you are probably asking yourselves who the FASB is and why you should care. Good question…here is why: FASB stands for Financial Accounting Standards Board. The FASB are the people responsible for setting the rules and recommendations that make up the Generally Accepted Accounting Principles (GAAP), or in plain English, the people that make the rules for accounting. All public companies are required by law to report their earnings and losses under the GAAP rules…meaning that these standards have a lot to do with the public’s perception of whether companies are making a profit or a loss.
Now for the dirty details about rule no. 157. 157 was originally issued in 2007 as a way to clear up how to mark the value of an asset held for future sale. The prevailing rule from 157, and a GAAP principle, is that companies must use the lesser of their original cost or fair market value (FMV) when valuing an asset. Under these rules, when banks discovered that they held thousands of junk loans, they were required to mark the value of those assets to $0, resulting in billions of dollars in reported losses – enough to upset the entire economy.
So, back in late 2008 when this was discovered, the government and the banks leaned on the FASB to change the accounting rules that lead to losses. Enter the proposed FASB rule no. 157-d. Rule 157-d re-writes the requirement for marking down assets without an active market (ie: crappy mortgages that no one wants to buy). According to the board’s official document:
In determining fair value for a financial asset, the use of management’s internal assumptions about future cash flows and appropriately risk-adjusted discount rates is acceptable when relevant observable market data do not exist.
Basically, 157-d permits banks to use the same faulty cash flow structures that let them approve the crappy loans in the first place to value their continuing asset inventory, and not recognize the loss until it comes time to sell.
All of this matter because of the language used in TARP. TARP stipulates limits on banker compensation when the institution is using TARP funds to cover a loss. However, TARP’s basis for determining loss is grounded in GAAP, so banks can use the new FASB ruling to incorrectly value assets, report a profit, and pay out bonuses when the real financials simply aren’t there.
So there you have it, instead of actually recognizing bad assets, banks changed the rules of accounting in order to continue their faulty practices and make it look nice for the Feds – and it all started with the a change in a rule no one knows, by a board that no one has heard of.
Want to know what else you weren’t told? Check out Black’s list of nine topics here.
Want to see the FASB ruling for yourself? Check out FASB rule no. 157-d here.
The Stupification of America, Part 1
by robert on Nov.05, 2010, under Politics, Society, Tea Party
This election cycle uncovered a trend in America that is both alarming and deeply disturbing. I’m not talking about the extreme polarization of politics, or almost guaranteed government gridlock that has been induced. Instead, it’s the manner in which campaign messages were conveyed, and the trend towards which they lean that is of my utmost concern.
For years, candidates have made sensational statements, and come out with contested attack ads to grab media attention in search of the precious sound byte that could secure a victory; so it comes as no surprise that those tactics prevailed once again. What is surprising, is just how stupid those statements and ads have become. What is alarming is the future to which they lead us.
Take for example, California Republican congressional candidate David Harmer. Harmer is a frontrunner for the Tea Party movement (henceforth, the t-baggers), and one of his tent pole issues this election was the proposed abolishment of public education.
Harmer wrote an op-ed piece in the San Francisco Chronicle touting the wonders of privatized education in early America. Harmer claimed that literacy levels excluding the south were similar to what they are now – so cutting public education would be a great way to save some money. He did not bother to mention that education in early America was available pretty much only to white people, and then, only wealthy white people – and he also apparently forgot that the South still is part of the Untied States.
But that’s not the problem either. The fact that a candidate who suggests abolishing education can even have a chance in the election is what is so concerning (and Harmer almost won!). This fact gives credence to my thesis, that America as a nation is wholesale embracing ignorance and stupidity.
More on this series to come…
To Clear a Misunderstanding
by robert on Oct.19, 2010, under Politics, Tea Party
Following the debate between Christine O’Donnel and Chris Coons, I feel that these two things need to be cleared up:
- The Constitution in no uncertain terms states in the first amendment that the Federal Government “shall make no law respecting the establishment of religion”. For those unable to extend the meaning of sentences (Tea Party Candidates) it means that the Federal Government MAY NOT endorse Christian doctrine.
- The “Theory” of Intelligent Design is not a theory. Theories start as a scientific hypothesis, go throw a series of tests and revisions, are peer reviewed, and backed by evidence. The theory of evolution is a great example of this. So is gravity. Intelligent design is a synonym for creationism and is a religious belief that under no circumstances should be endorsed by a government entity.
Please, Tea Party, if you insist on trying to be the government, at least get your facts right.
Edit: please see the video below, it just speaks for itself.
Fantasy Land
by robert on Oct.15, 2010, under Economics, Politics, Recovery, Taxes, Tea Party
Sarah Palin decided to get a dose of warm weather, speaking at a conservative rally near Anaheim yesterday. The point of the occasion was supposedly to rally support for California’s conservative candidates, despite the fact that neither major conservative runners were willing to be seen next to the former Alaska governor. So instead, Palin resorted to taking potshots at “liberal” policy, and referring to the liberal leaders, said what might possibly be the dumbest thing yet:
They act like they’re permanent residents of a unicorn ranch in fantasyland if they really think they’re gonna be able to turn it around with the liberal policies they have to continue, and you know, it’s pixie dust.
This of course coming from the woman who believes that the solution to our economic problems is going to be permanently cutting government revenue by disallowing a raise in taxes, eliminating the estate tax, eliminating public education, and eliminating entitlement programs that allow the underprivileged to buy things like food and medicine, yet continuing to waste trillions of dollars on defense and other special interests.
Sorry Sarah, but it’s fantasy land to believe that you can correct financial problems by reducing revenue, and doing virtually nothing to eliminate expenses (except those that actually have the possibility of a return like education and health spending).
Yes, good to know that we are the ones who are crazy.
Concerning On Ramps
by robert on Oct.14, 2010, under Driving, Society
It’s come to my attention over the past several weeks, that America, or at least drivers in the bay area need to be reminded that the purpose of an on ramp is to get up to freeway speed before getting on the freeway. All too often have I been stuck behind someone who goes 45 mph or less, and then merges onto the freeway as if they were driving casually down the boulevard. Not only is this sort of behavior annoying to those of us that actually have somewhere to be, but driving that slowly on the freeway is nothing short of dangerous.
And The Results Are In…
by robert on Oct.06, 2010, under Economics, Recovery
Goldman Sachs has embarked on a serious study to determine the possibilities for economic recovery in the coming year. Their results? We are either fucked, or seriously fucked, and it’s anyone’s guess which it will be.
As bad as the news is, it is actually refreshing to hear someone actually be honest about the state of the economy. After Biden’s “summer of recovery” and Obama’s musings about the American economy being “strong”, at least Goldman Sachs has the balls to come out and say that everything is not alright.
Read the official statements on Bloomberg here.
Tax cuts…how about back taxes?
by robert on Oct.01, 2010, under Politics, Taxes
Capitol hill is all abuzz with the debate over whether to extend the Bush tax cuts…democrats only want to keep the cuts for those who make less than $250,000 while the republicans believe in equality for all, right?
The real question though, is why the capitol cares about the tax cuts at all? An excerpt from the Washington Post published on September 9 says it best:
Capitol Hill employees owed $9.3 million in overdue taxes at the end of last year, a sliver of the $1 billion owed by federal workers nationwide
Well then…it seems like the republicans need not be worried about extending the tax cuts to everyone, since they don’t bother to pay them anyway. How can the nation be expected to comply with their duty to the country, when the leaders can’t even pay attention to the rules that they create?
My view, the democrats have it right. The middle class is starved, and frustrated trying to maintian a semblance of their lifestyle amidst rising prices and skyrocketing unemployment. Meanwhile, the wealth of the top 1% of this country grew more this year than in any other…as did the federal debt. So, let’s take it from where we can, and start working on paying down our massive bills.
But first, it’s time for the feds to pay their share.
Link to the original Washington Post article here.
Save the Internet
by robert on Sep.28, 2010, under Internet, Net Neutrality
It seems only fitting that the very first post on a new blog deal with the very topic that matters most: net neutrality. A very exciting bill has been introduced to the senate that if passed, gives the FCC the authority to mandate net neutrality and perhaps end the argument once and for all.
For those who don’t know what that means, let’s start with a brief history lesson. Net neutrality is the principal that all data on the internet be treated equally by service providers, ie: whether you are watching porn or Fox News, the provider gives equal quality of service. As of late, many large internet providers have teamed up with content companies and are proposing the idea of a fast tracked, or private internet that would give priority (faster) service to specific web sites, and perhaps not even service others. The problem with this is obvious: the web is as wonderful and developed as it is today because it is perfectly equal. While some websites certainly stand out from the crowd, they have achieved that position because they offer value, and in return have achieved popularity, not because they pay more for faster service or more traffic. Ending net neutrality would prevent new ideas from propagating by creating a barrier to entry.
Clearly then, a privatized internet would not be in the interest of the people; but it is in the interest of the companies that own the infrastructure because it would allow them to gain a greater level of control while earning extra cash. With such misalignment between the two parties, it is unlikely to turn out well for the consumer unless there is some interest group to protect them.
Enter the FCC. Since the topic first came about, it has been the FCC’s position that the internet should remain neutral, or pro net neutrality. The only problem is that the FCC does not have the authority to regulate the internet, so their pro net neutrality policy while good in theory is ineffectual at protecting consumer interest. However, the bill currently posed to the senate changes all that, giving the FCC the authority to regulate and force internet service providers to comply with the net neutrality policy, and as such, protecting the consumer. So please, write to congress, comment on blogs, join a group on facebook, or do whatever you can to further the cause….the fate of the internet depends on it.
