Professor Elam

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  • Professor Elam

    A Silver Coin for Mexico, and the Rest of Us

    Tuesday July 20, 2010

    Here is an idea for a silver coin but with a different twist. This coin would have  a high not a low monetary value. And it could go up in value if silver went up. This would have been a much better idea when silver bottomed at $3.50. But here is the proposal.

    On the other hand, people will joyfully accept a silver coin whose quote may be increased due to the increasing value of silver. In fact, this is an extremely powerful incentive to savings, and that is what we are looking for: more savings! No interest payment is necessary to entice people into saving this coin – silver is an irresistible magnet for savings. (The US is using it on a much smaller scale through the issuance of common coins with a marketing appeal, like the states and presidents series – Jesse)

    So our proposed legislation is this:

    The Bank of Mexico shall publish a monetary quote for the silver ounce, based on this procedure:

    a. To the international price of silver in pesos, Bank of Mexico shall add a 10% seigniorage (profit) for itself. ($231.41 pesos X 1.1 = $254.55 pesos. Today's values of silver and pesos, at kitco.com)

    b. The Bank of Mexico shall add to this, the cost of minting the silver ounce. ($254.55 + $19.02 estimate = $273.57 pesos)

    c. The Bank of Mexico shall round out the sum of the two foregoing, to the nearest multiple of 5, to make the monetary value easy to remember. ($273.57 rounded out = $275 pesos quoted monetary value of the "Libertad" silver ounce)

    d. When the international price of silver in pesos falls, the Bank of Mexico shall do nothing.

    e. When the international price of silver in pesos rises and impinges upon the seigniorage of the Bank of Mexico, it shall increase the quoted monetary value to restore its seigniorage.

    f. The Bank of Mexico shall mint sufficient quantity of Libertad ounces to satisfy market demand and prevent the appearance of a premium over the quoted monetary value of the Libertad.

    By this means, the people of Mexico will have an ideal vehicle for savings and even those who cannot read or write will accumulate these coins as a family patrimony. A recent Mexican Treasury study discovered that 85% of all Mexicans do not have bank accounts. These are the candidates for savings in silver!

    Under this legislation, the silver Libertad will never be melted down into bullion, as its predecessors. The coin will always be worth more as money, than as bullion.

    A fall in the value of silver will not affect this coin. No matter how severe a collapse in the price of silver, this coin will always be preferable to any paper bill or digital money, because the paper bill and digital money have absolutely nothing to back them up, whereas this coin will always have some value due to its being silver. I find such a collapse hard to conceive, but one must take into account this possibility.

    I cannot help adding that I believe that this silver money is what the whole world is waiting for, "waiting for the sunrise" out of our present deathly darkness. I believe that if it becomes a reality, it will be an enormous success.

  • Professor Elam

    A Speaker in Class

    Tuesday July 20, 2010

    William Burrus an internal auditor for a San Antonio based hospital will speak to both the  Intermediate Accounting and the cost class. The San Antonio Chapter of Internal Auditors is an active professional association with monthly meetings and education curriculum. I have addressed the group on two occasions. Please click on the hyperlink to learn more about the IIA.

    The primary professional designation for this group is CIA for Certified Internal Auditor. This is a four part exam and may be obtained with a Bachelor's degree. AS I explained in class, internal audit is a fast growing segment of the accounting profession. I started as an internal auditor for the City of Austin, today hat is a sizeable department in the City.

  • Professor Elam

    Weekly Column

    Friday July 16, 2010

    Self Serving Bureaucracies

    The bill "is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies," said Sen. Richard Shelby (R., Ala.).

    "We failed completely to understand the complexity of what the impact of the national decline in housing prices would be in the financial system," said Ms. Yellen, currently president of the Federal Reserve Bank of San Francisco. "We saw a number of different things, and we failed to connect the dots."

    WSJ Report on the Financial Regulatory Bill

    The upshot then is that the same group that failed to see the danger coming is now in charge of ‘fixing the system’ so that it does not happen again. Our theme today is not to discuss the financial regulatory bill, who could? The Bill creates yet another ‘Consumer  Agency’ within of all place, the FED. The FED of course has failed to prevent every financial crisis since it was created in 1913.  Our theme is that once organizations grow to a certain size, they no longer service their intended constituency, they serve themselves.  

    Barney Frank and Chris Dodd, the architects of free housing for all, crafted this legislation. And we understand that along with Ted Kennedy replacement Scott Brown, there are lots of goodies for the finance companies headquartered in Boston, their state capitol. Is anyone surprised?  As a veteran of the industry, I can assure you that finance is rife with rules and regulations, and Bernie Madoff and Bear Stearns and Lehman followed every one of them. Janet Yellen admits the FED failure, yet she is re-appointed and the FED grows not shrinks. A rational society would strip the FED of all powers and send the bureaucrats packing. 

    Such Federal incompetence is on daily display. From the Twin Towers (twice) to the border to the oil spill to the monster that is the IRS, the failure to connect dots is continual. And the solution is always the same, hire more bureaucrats that fail to connect dots. The idea that a salaried bureaucrat can legislate good judgement, especially among those determined to know and thwart the rules, is ridiculous. 

    This same theme is repeated over and over again. The most omnipresent threat the looming failure of states and cities to pay bills and pensions. Congress of course is doing nothing on this issue.   The State of Texas has made headlines on the content of social studies books. Yet among my students, I cannot discern at the college level, that anyone has ever read a book, period. 

    As one veteran of municipal government remarked, only the State of Texas can charge you to put waste in your own landfill. The IRS presumably has all the 1099s various entities have sent them regarding your and my affairs. Yet it is our job to find and report on them, or else.  Such meddling in our affairs only raises the ire of citizens, now on display as more incumbents are defeated. 

    But we cannot defeat the Janet Yellens, still on the job and still failing to understand the complexity of the system. Janet, there is nothing complex in allowing a purchase without payment, the zero down home buying approach. And there is no surprise that such a buyer, with nothing at stake, walks away when the bet fails to pay off. 

    And so it goes. We are awash in useless regulations that grow bureaucracies. Goldman Sachs just paid  $550 M to settle charge sit duped clients; of course they did. And not a single person at Goldman or the SEC lost a job. Does anyone seriously think that the largest settlement ever, but chump change for Goldman, will change behavior?  Indeed, now Goldman knows to the penny just what bad behavior costs, it will provide a handy measuring stick against future transgression…..

    The American Revolution had a convenient Atlantic Ocean between itself and King George. After a few years the British went home to other tasks. The French had no such luxury between themselves and Marie Antoinette. And so they stormed the Bastille; off with their heads was the cry. 

    The Taxed Enough Already crowd has already taken to the streets. But Washington sneers at their protests passing ever more expensive legislation to expand their control over everyday life. The Tipping Point draws ever closer, another terrorist attach, another spill, another meltdown….


  • Professor Elam

    Tom Sowell

    Thursday July 15, 2010

    Tom Sowell I remarked that Tom Sowell might be the single brightest guy in America. Today's Sowell column, Signs of the Times, is a good example. Prof. Sowell points out that a Business Week article reports that despite billions of stimulus dollars, firms are sitting on billions in cash. They are unsure what the Administration will do next, so they do nothing. This will explain the lackluster job market in which employees are the new liability.

  • Professor Elam

    Pride of Ownership, Deming Rides Again

    Thursday July 15, 2010

    Well I saved my pennies and I saved my dimes
    (Giddy up giddy up 409)
    'fore I knew there would be a time
    (Giddy up giddy up 409)
    When I would buy a brand new 409
    (409, 409)



    Picture 23      Beach Boys singing about the big block Chevy 409, the forerunner of the 427 mentioned in this article

    We are studying Deming and his ideas on Total Quality Management in cost accounting. He makes the point that if a manufacturer puts the customer at the center of their focus, success will follow. Well someone at GM, who could use some success, is paying attention. Now certain Corvette customers, can fly to Detroit and assemble the engine that will go in their car. I mentioned in class that Apple had the original MAC team sign the inside of the mold that made the MAC case. At Aston Martin, the person assembling the engine used to put his name on it. Now GM has duplicated that tradition, as owner, you assemble the engine under the guidance of someone who knows what to do, and you get to say you built it!

    Gee it only took GM 45 years to catch up with the Beach Boys enthusiasm for the GM product…..

  • Professor Elam

    Rhetoric Wins the Day

    Thursday July 15, 2010

    The headline says that J P Morgan made $4.7 B in the second quarter. 

    Now read the rest of the announcement, 

    JPMorgan Chase & Co. said Thursday its second-quarter net income soared 77 percent to $4.8 billion as a slowdown in losses from failed loans helped offset a difficult spring in trading and investment banking.

    In other words, Morgan is not losing as much as it WAS on loans and so that helped the fact that it had a 'difficult' spring in trading. The S & P was down 11%, difficult is banking speak for we lost our shirts and failed to see this coming……Anyway, this sort of double speak is the sort of thing that is hardly reassuring. The fact that things are not as bad as they were but the one way we claimed to make money, trading, fell off the screen, well, what ever happened to banking anyway?

  • Professor Elam

    Hong Kong Flat Tax

    Thursday July 15, 2010

    Hong Kong has a true flat tax. Why don't we, clearly this is a boon to business in HK, interesting the Chinese 'Communists' have done nothing to change this. As Jim Rogers says, the Chicons are the world's best capitalists, Barney Frank, Charlie Rangel are you listening?

  • Professor Elam

    Out of Money, No Problem, Borrow More

    Thursday July 15, 2010

    On the markets blog and in previous entries here we have discussed the fact that states and cities in the US are out of money. I guess that this fall will be time's up what are they going to do. Sure enough, Illinois

    plans to float pension obligation bonds to fund, yes, current pension obligations. This is insane. If the pension obligation cannot be met, piling on more debt will just make the final reckoning worse. We will study pension obligations in Intermed IIl. With a flat stock market for ten years and fewer workers coming on line, the assumptions of pension fund earnings were not met, but of course everyone wants their pension check. What to do?  Well, selling debt and hoping things get better is hardly a solution. Stay tuned, our guess is that if there is another financial meltdown this fall, it will start with such unfunded obligations.

    I just ran across these state updates on Mish's Global Economic Analysis site, see sidebar for link. As he says, how is it that the municipal market is staying steady with this stream of unfunded debt?  The answer is that retirees, eager for yield, are emptying their safe bank accounts to venture into the debt market. We suspect, as we said above and Mish says today, that this will end badly this fall. Remember NYC in 1976, imagine the New York City default of 1976, everywhere…..

  • Illinois let $5 billion of bills go unpaid.
  • Minnesota is delaying corporate and sales-tax refunds, postponing school and medical aid and setting up a $600 million bank line of credit.
  • New Jersey is planning to refinance about $250 million of general-obligation bonds to push $202.5 million of debt-service costs into future fiscal years.
  • Illinois, is selling $900 million of bonds for capital projects this week.
  • 22 states put staff on temporary leave.
  • Arizona sold its House of Representatives and Senate buildings.
  • California solicited bids for 11 of its office complexes.
  • Delaware saved $29,000 by eliminating flowers at the state psychiatric hospital and health department.
  • California Governor Arnold Schwarzenegger, facing a $19 billion budget deficit for the year that began this month, is trying to force 200,000 state workers onto minimum wages temporarily.


  • Professor Elam

    One More Time..

    Thursday July 15, 2010

    Yesterday in cost class I suggested that there are four levels of probablility.

    Certainly true

    Probable

    Plausible

    Not true

    The difficulty of course is that gray line between probable and plausible, what is going to happen. This article about Henry Kravis and Hugh Hefner puts that in perspective. Kravis is famous for the tobacco takeover of RJR made famous in the movie Barbarians at the Gates. Now 66, he is moving his public firm from an Amsterdam listing to the NYSE. Clearly he hopes the shares will go higher. Hefner, 84, owns 70%, the majority of the shares in PLA. Yet oddly he has offered $123 M to buy the whole thing. The entire company was recently worth less than $200M. Not long ago it was estimated the CA mansion was worth near $100M, suggesting the break up value of the firm was higher than it was trading. While the author refers to his daughter Christie as brilliant, the facts hardly back that up. The shares fell in value over her tenure, the company took on debt that never paid off, and well, here we are today. Someone bought the PUMA brand not long ago for I think $15 M and is bringing it back. 

    Picture 22  So, having done little or nothing with PLA for the last ten years (okay there was that wonderful reality show with Hef and the three gals) is it probable or plausible that at 84 Hef is going to be able to do something with a private firm that he could not do with a public firm?

    Career advice, when someone tells you that they are thinking of retiring and want to bring someone like yourself in to run the firm, remember Henry and Hef, they never retire….kinda' like Supreme Court Justices and Popes……

  • Professor Elam

    How to Win Friends

    Wed July 14, 2010

    I mentioned the classic self help book How to Win Friends and Influence People in Class this week.

    A good link to wiki is here.  Hmm 15 M copies sold so far and still in print!

    The Amazon Review is a good one.