Author Topic: Bull**** is now allowed in financial statements  (Read 4230 times)

value-is-what-you-get

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Re: Bull**** is now allowed in financial statements
« Reply #10 on: April 02, 2009, 03:58:15 PM »
MTM figure is inherently flawed and as Uccmal correctly states it tends to skew results further in good times and bad.  Sort of a legitimized incorporation of folly in both directions.  I believe the main reason for MTMs implementation in the first place was to keep individual greed and incentive bias off the financial statements but the results are less than perfect.  

That said, this looks like a powerful tool for capitalizing on Mr Market's folly prices against our own IV calculations, the epitome of which has been kindly demonstrated to us by the circus surrounding Berkshire's Equity Puts.

Find the MTM figures in the financial statements (the bigger the better), determine the direction they will accelerate Mr Market's folly and position yourself accordingly.


ragnarisapirate

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Re: Bull**** is now allowed in financial statements
« Reply #11 on: April 02, 2009, 04:37:36 PM »
What I am gathering from some of the discussion is that we should be forced to look into the financial statements of companies that we own, as a part of analyzing their books... Not that there is anything wrong with that-we need to look into the books.

It seems to me that the financial statements should be as transparent as possible-especially when being given to the owners of the company-maybe publish balance sheets and income statements with an asterisk that says "HEY, LOOK AT ME! these assets were worth x when we bought them, but if we were to liquidate them right now, would probably sell for y."

I have always been astonished that a mere accounting rule, that before taxes, doesn't actually change the intrinsic value of a business-should be thought to fix the banking industry's problems...

Charlie Munger: "when you mix raisins with turds, you still have turds."


Santayana

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Re: Bull**** is now allowed in financial statements
« Reply #12 on: April 02, 2009, 06:17:20 PM »
There is a difference between not being a market for certain "assets", and the owner not liking what the market is willing to pay for those assets.    There are plenty of people willing and able to buy some of these distressed securities, but the owners just don't like the bid.   

I also thought the idea behind capital ratios was that the banks had liquid assets to back their loans.   If there really is no market, then those assets shouldn't be allowed to count towards their tier 1 ratio.

Unfortunately it's become abundantly clear that the taxpayer will end up covering any difference between the marked value and actual realized value.    Heads they win, tails you lose.

Hoodlum

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Re: Bull**** is now allowed in financial statements
« Reply #13 on: April 03, 2009, 11:20:43 AM »
I suspect there would be a lot of nudges/winks in these "deals".  So now we may be entering a new shell game where we will need to guess where the toxic assets are at any one given time.  The insanity never ends.

Bailed-out banks may buy toxic assets

"U.S. banks that have received government aid, including Citigroup Inc, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co, are considering buying toxic assets to be sold by rivals under the Treasury's $1,000 billion plan to revive the financial system, the Financial Times said.

Citigroup was considering whether to take part in the plan as a seller, buyer or manager of the assets, but no decision had yet been taken, the paper said, citing people close to the company....

The U.S. government's plan, known as the Public-Private Investment Program, gives government help to private investors looking to buy loans and securities from banks.

"It's an open program designed to get markets going," a Treasury official told the paper, adding that "it is between a bank and their supervisor whether they are healthy enough to acquire assets."


bookie71

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Re: Bull**** is now allowed in financial statements
« Reply #14 on: April 04, 2009, 12:21:51 PM »
I really miss the "lower of cost or market" concept. It sure took a lot of the "fudge" or BS out of the equation.
Always remember, Pigs get fat and hogs get slaughtered.

scorpioncapital

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Re: Bull**** is now allowed in financial statements
« Reply #15 on: April 04, 2009, 01:13:41 PM »
I really miss the "lower of cost or market" concept. It sure took a lot of the "fudge" or BS out of the equation.

And if there is no market, then cost is the correct accounting treatment? This whole thing hinges on the definition of a 'market'. Does 1 crazy bid make a market? How about 2 crazy bids? The idea of *economic* value seems closer to a fair assessment of value - as long as the holders of these assets don't cheat!

Crip1

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Re: Bull**** is now allowed in financial statements
« Reply #16 on: April 05, 2009, 07:42:15 PM »
The idea of *economic* value seems closer to a fair assessment of value - as long as the holders of these assets don't cheat!

That is the point, IMHO, that when the results of "cheating" for senior executives of corporations ends up producing obscenely-sized bonuses, then human nature and history clearly shows that cheating will occur. I remember Warren and Charley talking about derivatives years ago where, due to the complexity, both sides in a transaction could (and did) calculate that they both had unrealized gains on OPPOSING ENDS OF A TRADE. This is completely insane. So, we have to create an imperfect regulation (MTM) in order to stop cheating.


You're talking about the bid.  A more accurate analogy would be that some wacko owns 10% of your business and decides to sell 1% for $500.  At that point MTM would say that the whole business is worth 50k. 

Oldye, I see your point but I see that as a very remote possibility. What I do see as possible is a friend of your wacko who shorts the hell out of your business (legally or otherwise) and then your wacko does his thing. MTM does allow for that kind of manipulation and likely others. So, how do we dissuade this? Enforcement with some stern-ass penalties would be a good step. Maybe we could create a commission to do this...a commission which would look over securities and exchanges. We could call them the Exchange and Securities Commossion. That would be a great idea. Of course, this commission would need to be above reproach and the individuals working there would need to be first and foremost concerned with the well being of the markets and not the major Wall Street Firms from whom they hope to get jobs in the future. But that would really be cool.

It all makes me want to vomit.

-Crip