Professor Elam

Regular readers of the blog are aware I have been predicting a real estate and financial meltdown, it is here  now.  Click on the graph of the largest mortgage company in the US at left to see what a real PANIC can do short term.  Only a fraction of CFC’s mortgages are sub prime but that is not helping the stock price.  CFC borrowed $11.5 B this week to assure the market it could live up to its commitments which is to say fund existing mortgage commitments. 

I have been telling classes this is an excellent and exciting time to study accounting.  Here the issue for accountants is, what are the mortgages worth.  After all, that is what is on CFC’s balance sheet.   Click the hyperlink to see that the majority of assets are ‘long term investments’ read, mortgages held by CFC.  So, what are these intangible assets worth?  The market is saying, not much.  Do the outside auditors of CFC have reason to be embarassed?  Was their  certified audit incorrect? How does one value a mortgage?  Should the auditors consider the value of the real estate, the collateral?  We will be studying such questions particularly in the audit class this fall.

Short term the market looked exhausted to me on the close yesterday, it had come back some 300 Dow points from a low.  We should make some sort of low in the next few days if we have not already.   But that should prove to be short term.