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Thread: FAS 157 is stupid

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  1. #1
    Ultimate Member herosrest's Avatar
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    FAS 157 is stupid

    FAS 157 is stupid

    There. I said it. Now this venture capitalist can be the punching bag of auditors everywhere. As I type these words today, an accounting rule called FAS 157 is going into effect — to the delight of no one. Well, that’s not entirely true. The accountants are happy, because they’ve once again found a way to charge their clients even more fees. And one day the lawyers might be happy as well, because I believe that FAS 157 will usher in a new era of valuation-type liability.

    So what is FAS 157? Simply put, FAS 157 says that one must value investments at “fair market value.”

    Well, that doesn’t sound so bad, does it? Why should anyone outside of the oil trading business object to valuing things fairly? Well, I’m a venture capitalist and I object.

    I object because it’s not possible to “fairly value” a private, early-stage portfolio the way that FAS 157 wants us to. This process injects a ton of false precision and costs and benefits neither the venture firm, nor its investors.

    Prior to FAS 157, we would carry our investments at cost until such time that the company was: A) funded by a third-party and marked to the new cost; B) funded by insiders and marked down if the valuation decreased; or C) marked down due to poor performance. In none of these cases could I discretionally mark up one of my investments. Also, this was primarily a market driven approach, whereby we let the private funding market determine the value of the investment.

    Then the Enron’s of the world screwed us all and suddenly we needed a better way to value investments. Actually, Enron’s accountants screwed us all and then the accounting world got together, created FAS 157 (and Sarbanes-Oxley and 409A, etc.) and got to make a lot more money based on their own Enron-type screw ups.

    But FAS 157 says my previous valuation methodology isn’t “fair value.” FAS 157 says that we must take into account what a third- party would be willing to buy our shares for. In order to determine this, we must run complicated financial models to evaluate things like EBIDTA, net cash on hand, page views, customer traction, public comparables, and many other factors. We must bring our back office to a grinding halt and spend copious amounts of partner time evaluating valuation models and drafting reports at the cost of not evaluating new investments or helping our current portfolio succeed.

    All of this data generation means nothing in the real world. ........
    __________ Jason Mendelson | January 15th, 2009

  2. #2
    Ultimate Member herosrest's Avatar
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    The rules put in place in response to Corporate and CEO abuse are themselves corrupt. Not in a criminal sense but in pure disregard of logic and Human Nature. If people are stealing, manipulating or misbehaving - you put in place practise to prevent it, catch them and punish them as example. Current practise puts the cart before the horse and ensures the worst of all worlds by covering up wrong doing with the wiggle of an accountants pen. Mark to market accounting is from the school playground - that it is used to measure and control serious business enterprise would bring the house down in fits of derision. Unfortunately, everyone, and l really mean everyone, either doesn't grasp it, doen't care yet or is simply afraid to talk up.
    USA - you have got a disastrous problem in your laps with current, implemented, accounting practise.

  3. #3
    Ultimate Member herosrest's Avatar
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    George Bush, to his credit, heard and listened last year to the voices stating there were serious problems in the offing with the new accounting Rules. There was a Senate inquiry and the Rules stand. This was a mistake, mark to market or 'fair value' accounting valuations are stupid! Obviously for very good reason, the problem has been seriously studied and FAS157 was part of the solution to a corruption scandal. It is a disastrous solution that punishes the innocent and rewards wrong doers.

  4. #4
    Ultimate Member herosrest's Avatar
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    There are very simple straight forward ways to value stuff. Traders and dealers hate them, because they put a floor under everything and everyone knows where they stand. It becomes very much harder to take advantage of people who know what stuff is actually worth. They won't argue price anymore - they will knock down fees.

    Take property. A house standing alone on a street. What is it's value today. Build an identical house next to it. Voila you have the data to establish the value and worth of the property. Too-ooo simple, isn't it, because traders have to have it complicated and come back at you when they screw up. Socialists - the lot of 'em. Oh help me, help me, help me, l'm too important to be ruined. (oh, really?)


    Ezekiel - "The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men. Blessed is he who, in the name of charity and good will, shepherds the weak through the Valley of Darkness; for he is truly his brother's keeper, and the finder of lost children. And, I will strike down upon thee with great vengeance and furious anger those who attempt to poison and destroy my brothers! And, you will know my name is The Lord when I lay my vengeance upon thee!"

  5. #5
    Ultimate Member herosrest's Avatar
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    FAS 157 REINFORCES and amplifies THE DESTRUCTION OF value.
    This is because it is 'arbitrary'. If you don't know that word - look it up.
    If you don't understand that word - sit and think it through for 5 minutes. It is about bias.
    It leaves people confused and frustrated. It is UNREAL.
    If you can't afford something - you go without. That is life.
    Unless you are an accountant, with FAS157, trying to turn a penny.
    This rule and method of accounting is, utter, pure, total BOLLOX!
    Quote Originally Posted by herosrest View Post
    In the world of American government, the trillion is the new billion.
    There was a time when only astro-physicists and accountants practising in Zimbabwe had any use for a word which - in the US at least - means a million millions


    The US economy has suffered a sharp nosedive. Plunging exports and the biggest fall in consumer spending in 28 years has meant that the decline was much worse than analysts had expected. Kevin Connolly in the US looks at why we are now talking trillions as well as billions.

    we are still in the process of adjusting to a frightening order of magnitude.

    APRIL YEAR END BUSINESS ACCOUNTING SHOULD FINISH IT ALL OFF, RATHER NICELY.

  6. #6
    Ultimate Member herosrest's Avatar
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    No-one working up, conceptualising or implementing FAS 157 (Mark to Market) has any experience of it's implications during a serious Global economic down turn.

    Those who got to grips with the concept last, were coping with the 1930's depression. As soon as 'mark to market's' implications and power of destruction were comprehended - IT WAS HISTORY.
    Not because of the people, not because of ideology, not because of economics............... but because it establishes false relationships that destroy value. Given enough time during set back, it will reduce all value to ZERO.

    It is a flawed concept. A mistake of immense proportion. It is not preventing high level abuse as intended and is destroying economies that are already in trouble. It amplifies the problems by factors.

    Mark to market is a local tool. It does not scale to National or Global concept. One sector failing, just one, can take out everything else. It is not a 'perfect storm' it is a 'black hole' during economic adversity.
    Last edited by herosrest; 03-02-2009 at 07:50 AM.

  7. #7
    Complete & Utter Member j.m@talk's Avatar
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    Yeah Stupid


  8. #8
    Ultimate Member herosrest's Avatar
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    A.I.G. Scrutiny About to Enter the Next Phase December 22, 2004 - By LYNNLEY BROWNING

    fter the American International Group settlement three weeks ago with federal regulators over the sale of insurance that helped companies manipulate their earnings, one big question remains: Is there anything else rattling in A.I.G.'s closet?

    Attempts at answering that question will begin soon, with the appointment of an independent monitor who will comb through the company's books for the last four years. The monitor, who is being named by the Justice Department, is subject to approval by the Securities and Exchange Commission and the company. That person, who will be a lawyer with expertise in insurance, will put together a team of legal and forensic accounting experts. The appointment could be announced as early as this week.

    The monitor, as well as $126 million in penalties and restitution, is the heavy price of a settlement between the company and the S.E.C. and the Justice Department. The accord covers loss-hiding transactions the company arranged for PNC Financial Services, a Pittsburgh-based bank, and Brightpoint, a small Midwest distributor of cellphones.

    The use of an independent monitor is an unusual step, and it underscores how little is known, by regulators, analysts, shareholders and investors, about the sale of insurancelike products that companies buy to smooth their earnings. As part of a continuing investigation of A.I.G., regulators want to know exactly how many other income-smoothing products were pitched by A.I.G. and who, if any, bought them.

    "The S.E.C. does not have a sense of how many of these A.I.G. did," said a person close to the investigation.

    What is clear is that American International, the nation's biggest insurance company, actively marketed these products in the late 1990's so that insurers and banks could join the investing boom in technology and, in variations a few years later, so that such users could hide the fallout when the boom turned bust, say regulators, insurance lawyers and insurance industry executives. ...... ......

    A problem is that A.I.G. is such a large, complex company, that even it may not have the bird's-eye view of what it has done wrong. But the company's traditionally close-lipped approach to disclosing details of its business is weighing heavily on the minds of some Wall Street analysts, who wonder what other problems, if any, may be discovered.
    During deep sleep IT came to me and the future of processing is clear.
    Future processors will primarily be digital tuning radios acting as grid computing nodes.
    Voila. See ya in hell.
    PROCESSING

  9. #9
    Ultimate Member herosrest's Avatar
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    チャットモンチチャットモンチチャットモンチチャットモン
    A further issue NOW - is the exposures brought about by Market to Market - re-valuation during a MARKET adjustment to over pricing. Business looking to protect itself from lnvestment fallout is taking down the entire economy in attempts to survive. Mark to Market accounting is the final lnsurance. It is flawed - fatally as a concept. There is no BOTTOM LINE - Devaluation is the repeating ONLY ACCOUNTING option - even for business doing well. IT IS A catch all nightmare!
    チャットモンチチャットモンチチャットモンチチャットモン
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    Registered User mireland's Avatar
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  11. #11
    Ultimate Member herosrest's Avatar
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    チチャットモンチチャットモンチチャットモンチチャットモンャットモンチチャットモンチチャットモンチチャ ットモン
    l have pointed out that expectations of recovery in economies may be wishful thought. Incomes are being decimated on all fronts. Commercial property lags to a different time scale through contracts. Once adjustments begin in earnest, it will be rather more than another finger in the dike which is order of the day.

    It is all plain as day how events are and will proceed while price, 'ability to pay' rules the mindset of accounting valuation. Price is a 'component' of economics - it is treated as defacto and held prime. That is bollox. Price is a tool not a law of physics. It is subject to whim, fad, manipulation, marketing and a host of further toys. Above all it is utterly dependant upon cash flow, the current account - which is crippled and diminishing. That does not undermine what something cost to make. It indicates that cash needs to go not into lnstitutions and business but directly into pockets and purses. The population have been under valued. Let business stump up the taxes for a while and give workers a total tax break and pay rises. Give interest free loans. Spending, spending, spending, everywhere. Cash retiree's out of pension funds - a proportion will be spent. Diminishing assets are suicide. Take advantage of them. Cash in a larger percentage of Mutuals and pension funds. It isn't just government that has to spend.
    Oo'er there's a problem - government will have to fix it. Sad!

    Price, pricing, the obsession with it is the pathetic reason this entire mess was possible and cannot be undone. It has brainwashed everyone and ... hey, suddenly it doesn't work any more. THAT IS BECAUSE THE CONCEPT IS WRONG - IT IS FLAWED. The system of accounting doesn't work in reverse. It is flawed, fatally, as soon as value declines. In practice once devaluation takes place, the accounting, as it stands today, ensures that devaluation become general and is maintained, continues and cannot be reversed. It is unavoidable but takes place purely because of the rules and mindset, regardless of any other facet or attribute. The concept of pricing valuations for accounting is flawed.


    Bye, bye Commercial Property values and...... pretty much everything else.
    チチ Rents in London could plunge by 50%
    チチ Rental properties flood the market
    チチ Commercial rents set to fall as troubled banks begin to offload office space

    Just Google it yourself -

    The earnings and therefore value and then valuations are nose diving. Real Estate, homes is already doing 30% pa for quite a while and is seriously under priced - under valued. Commercial property wont wait it will go boom! (Bust actually) - it is therefore over priced. Income is down and threatened. It is not over valued.
    Oh dear........ what do we do now? The Banks have serious trouble already. What do you think is about to happen now with Commercial property.
    One quote - from propertyweek
    Andy - Ever the Optomist 10:39 | 06.03.09

    "There will be a further dramatic fall in values in every country around the world which has experienced the property bubble. This will bring virtually every financial institution and bank to its knees. Let's hope that the treasuries of the world have an appropriate plan in place for what is an inevitable event. Histories account of this depression will find a suitable description for what has been the largest fraud ever perpetrated. On the other hand spring is around the corner, the daffodils will soon be blooming and my wife is still spending......."

    There was not a property bubble - there was an lnvestment RETURNS bubble.
    It drained mountains of 'value' OUT of current accounts.
    It was a farce, continues, must be halted and cash put back to work in peoples pockets and purses.

    チチャットモンチチャットモンチチャットモンチチャットモンャットモンチチャットモンチチャットモンチチャ ットモン
    Last edited by herosrest; 03-08-2009 at 09:53 PM.

  12. #12
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    Explain how short selling works, in simple terms please.

  13. #13
    Ultimate Member herosrest's Avatar
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    Funny you should mention that, Werz. There is argument, quite heated that it is neccesary and vital to trade. Well trading actually. It generaly occurs with borrowed stocks and shares - thus it isn't really short selling. l think Australia actually locks people up for trying it. Good on yers. This argument is hot, right now in Oz, so i'm sure you have had a blank moment. Here though is one l was preparing earlier. Short selling gone horror story. AIG......... It was outlawed, the nasty aspects of it, from erm... 1938ish until quite recently.

    AIG is going to explode. It will happen soon. It will be spectactular and the implications will travel far. The damage will be not be financial. The AIG debacle is an ugly and complicated affair. A wonderful tail of frail humanity.

    Noise is being made that the UK slipped up regulating Cassano in London. That is a negatory folks. Here's why.........

    September, 2008 - A portfolio of credit default swaps AIG wrote to linked to subprime mortgages has cumulative losses of $18 billion over the past 3 quarters.... erm , only $18 billion???

    Hank Greenberg architected AIG Financial Products, the CDS business operation and compensation were set up under him. Greenberg hired a group of traders that had worked together at Drexel Burnham. He would later promote Joseph Cassano to lead the unit, which became a sought-after employer since it offered to share a third of all its profits with staff. Cassano is now at the centre of U.S. and UK probes into what happened at AIG Financial Products.

    Since 2001, compensation at AIG's financial products unit ranged from $423 million to $616 million each year. A freewheeling 377 person unit in London, flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models. Over all, A.I.G. Financial Products paid its employees $3.56 billion during the last seven years. No one realised anything might be amiss, it wasn't was it. Smooth plain sailing. Who would not trust the boss of an AIG Insurance unit.

    December 2007 AIG's accountants insisted the company mark to market, an immediate $5 billion write-down resulted.

    AIG, was the primary insurer of Lehman Brothers.

    AIG operated an Investment Bank (AIG Private Bank),based in Switzerland. This Asset was recently sold, UBS advised.

    AIG operated a hedge fund of funds operation for 20 years with more than $7 billion assets. Since 2006 AIG offers hedge fund managers liability insurance protecting managers, directors and officers of hedge funds against the cost of litigation and formal regulatory investigations. During 2006 the SEC tightened Hedge Fund regulation.

    Greenberg, former Army captain, built AIG into the world's largest insurer. He left in 2005, after a bit of stink over numbers. Greenberg is suing AIG, for misrepresenting risk from credit default swaps held by AIG Financial Products, being misled into buying stock and overpaying taxes because of inflated prices.

    In 2005, an investigation by NY Attorney General Eliot Spitzer, forced Greenberg out of AIG, Spitzer did not smile over that for long.

    He is still being pursued by NY State in civil charges, as a string of lawsuits stand between him and AIG.

    AIG is at this moment suing the US Govt. claiming it has been over taxed in previous years. The sum, hundreds of millions. H'ok, business is business.

    Greenberg, has accused the US government of bungling the insurer's rescue by imposing a high-interest loan and forcing the repayment of $30bn (£21bn) plus to banks and trading partners.

    AIG just posted a $61.7 billion quarterly loss, the biggest in corporate history.

    The U.S. government bailout already threatens to cost $180 billion.

    Credit default swaps, or CDS, held by AIG Financial Products have driven AIG's losses, exceeding $100 billion over the past five quarters. AIG also wrote collateralized loan obligations (CLOS) and multi-sector CDOs,

    By AIG's own description, the default swap portfolio amonts to some $527 billion. Incredibly, AIG discloses it received in exchange only a minimum guaranteed fee. The company still has about $300-$400 billion of this exposure.

    U.S. Senate lawmakers are putting pressure on the Treasury and Federal Reserve to disclose information about the third-party firms that have benefited from the federal bailout of AIG. March 14 - AIG plans to disclose counterparties to the credit default swaps it wrote on complex debt securities. That will be good fun.

    Last week, Fed Vice Chairman Donald Kohn provoked the ire of Senate lawmakers by declining to identify the firms that AIG does business with. He defended his refusal to disclose the information by saying that it might discourage firms from doing business with AIG in the future.

    UBS AG has announced that it has reached an agreement to buy the commodity index business of AIG. UBS will acquire the trading books and the IT platform of the AIG index - one of the world’s leading commodities indexes. This deal comes as a surprise to some as UBS had recently sold assets to get out of its own commodity business.

    Swiss Re estimates its exposure (excluding reinsurance) to AIG at approximately SFr200 million.

    There is very, very much more to come but above and beyond all else one simple question. Why wasn't AIG hedged against its risks.
    One more time folks..... Why wasn't AIG hedged against its risks.


    There was no property bubble. There was no credit bubble.
    There was an Investment returns bubble - which drained mountains of cash out of the economy. Write that up!

  14. #14
    Ultimate Member herosrest's Avatar
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    “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”
    — Joseph J. Cassano, a former A.I.G. executive, August 2007


  15. #15
    Registered User mireland's Avatar
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    well..goodnite. I'll leave you to your ramblings...

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