1/23/08, The Rose Garden Press Conference President Bush -And so my Fellow Americans we stand united for the common purpose of engaging our task, keeping the American Economy on a continued track to prosperity for all. Today we head for the Cabinet Room to Make the Tough Decisions that will keep us the economic envy of the world.
Presidential Aide sighing relief-Well for once he did what we told him and avoided the ‘R’ word
Cabinet Room Ted Kennedy – Mistah Prezdent, Ahm so thrilled ah thrilled, I propose a toast!
Kennedy Aide aside – Not yet Ted!
Nancy Pelosi, D House Majority Leader – Obviously we need to get help to those that need it most, the poor and displaced from Republican tax cuts and lack of CHIP funds
Charlie Rangel, D House Ways and Means Committee – While CEOs fly to the Super Bowl in their Gulfstreams, and seniors worry about their Lipitor prescriptions and Buick leases……
Hank Paulson, Treasury Secretary – I think we can all agree on across the board, fair help for everyone in need
Dick Cheney, Vice President and $35 M richer from HAL options – Well about time, how about some tax relief for job creating CEOs stung from the Alternative Minimum Tax on option exercise, geez condo prices on Hilton Head continue to plummet
Tom Harkin, D Iowa – I keep telling all of ya, with enough ethanol subsidies for the heartland of America we could put those Arabs back on camels where they belong
Harry Reid, D Senate Majority Leader – Mr. President, I just came from that coffee shop in Searchlight, NV and my God the specter of hundreds of blackjack dealers with tears streaming in their eyes, where will we go in a Recession they asked me, if Americans do not have the courage to draw on 16 and stand on 19, we are truly lost as a country….
Ed Lazear, Chmn Council Economic Advisers – Our staffs have crunched the numbers and determined that
$ 300 each for families with Adjusted Gross Incomes from $35-75,000 dollars,
Nancy Pelosi – Typical, leave out the working poor that don’t earn $35,000
Lazear – But they don’t pay any taxes
Pelosi – How could they, Jack Welch shipped all their jobs to India
Hank Paulson – My staff suggests that we finance this from future deductions of FICA contributions to be raised in the next Fiscal Year and taxed at one time rates of
Harry Reid – No way, you aren’t moving the tax to Hillary’s Presidency!
Presidential Aide in Bush earpiece – So what, we aren’t running again anyway let the Hillary sweat the deficit, call it the Leave No One Behind Act!
Charlie Rangel – Well if Lee Raymond at Exxon got $400 M, we could split that among one million people at $400 bucks a piece, Hillary is going to take it away from him next year anyway…..
President Bush – Ah, lemme see, $400 M divided by 400, uh, could someone get me a calculator….
Carl Levin D Michigan – Well if it is good for GM it’s good for their workers, a $6,000 level the playing field surcharge on every Toyota made south of the Mason Dixon would finance all this in a heartbeat
Dick Cheney – I told ya, I told ya, the Dems just want to throw money out of airplanes to a bunch of welfare wannabes that won’t work anyway
Presidential Aide in Bush earpiece – Darn that’s great, we announce that you will personally distribute the first checks in Florida from Marine One Helicopter and we get all the media coverage during the Primaries there….
Harry Reid – The War is Lost and if we can afford Billions for Baghdad why not for Ohio, an obvious swing state for us, no scratch that, is this mike on ?
Ted Kennedy – What about the Irish, the pub industry in Baghdad, er Boston, is down by ah, well I forget, but and my personal inspection tour…. uh er ah, where was I, can someone get me a Guiness….
Ed Lazear – Mr. President my staff calculates that if 35 million Americans walked into Wal Mart with $300 to spend..
Nancy Pelosi – Wal Mart, I knew it, I knew it, shilling for Corporate America again
Mike Huckabee R Ark – But the working poor work at Wal Mart and here in Bentonville…
Nancy Pelosi – Arrrrrggggghhhhhhhhh, jumping across the table and grabbing Huckabee by his hair
Dick Cheney – Leave it to the Dems to dump on the job creators
Charlie Rangel – Let me create a Marine Recon choke hold for you!
Cheney – My heart my heart !
Harry Reid – Cheney has a heart?
President Bush – Get some Marine Guards I here, we gotta have order, ducking as a paper wad of Countrywide stock misses his head,
Ted Kennedy – Order? Where’s my Guiness anyway?

1/28/08 Dana Perino, Presidential Press Secretary – It will come as no surprise that during this Call to Action, leaders of both parties have put aside partisan differences to come together on the No One Left Behind Act. Next July 4 at the same exact time, Nancy Pelosi in Haight Ashbury San Francisco, Harry Reid in Searchlight NV, and President Bush aboard Marine One will distribute the first of 50 million checks…..

In today’s DMN Scott Burns details the latest Florida condo and home bust.  This helps explain why the Recession will not be quickly solved by all of us rushing to Home depot with $600. But there is nothing new in all of this. Every boom hatches derivative boomlets that are even more destined to fail when the fathering bom collapses. And so low interest rates got the housing boom going convincing everyone that like the stock market of 1999, prices went ever upward, causing the creation of tv shows like Flip this House. Former icon Donald Trump who came to fame in the NYC renaissance a few years back, re emerged wtih the Apprentice and then nation wide seminars. His latest is of course, ever the resourceful type, how to get rich in foreclosure sales, presuming you are not the object of the exercise of course. My point is that this is a replay of the Texas S & L bust which was the real estate bubble bursting in Texas in the 1980s which was brought on and fostered by the oil boom. When oil collpased so did the money to buy and so the ‘flippers’ became the one losing in the real esate game of muscial chairs so to speak. You never want to be the last person to try to sell…no buyers….

I have been pushing for a course on business history. History repeats again and again, understanding that and what has happened will make you a better investor. This Florida bust happened previously in 1925.

Palisade Palms in Galveston shows most of their units to be sold. Of course sold means in most cases, a mortgage. And lately that means a short term bet on values rising. I wonder how many bought expecting to re sell at higher prices?  The other great example is Las Vegas where multi story condos are the order of the day.  Starting at $500 K they are literally everywhere. Boyd Gaming is down 50% and the Sands and Wyn’s are well off their highs, I suspect those stock prices are  pretty good proxy for the economy their.

And so it goes.  The best use of understanding a first derivative in calculus is that it derives from another curve. The derivative is actually a measure of the rate of increase from unit to unit of the first curve or graph. In these cases a stock market ala the Roaring 20s gave rise to the first Florida Land and RE boom in 1925.  Eight five years later it is deja vu all aover again. 

Larry Kudlow takes a look at captialists like Bill Gates and Soros that doubt their own engine of success.

No question there are gross excesses that anger me, like Lee Raymond at XOM getting $400 M for preiding over an oil company when the price of oil was going up, how tough is that?  Tell you what Lee, let’s try you out in West Texas at the end of the oil boom in 1986 running a service company for XOM, and let’s see how well you would have done, now there is a test.  Answer, most were let go, period, by the oil companies.

IF the world is not responding as fast as Bill would like it is the Idi Amins (see the Last King of Scotland) and Robert Magabwes that are responsible. Where will the US be in thirty years if China puts in another ten years of 10%+ grwoth rate?  And if India and Korea continue to outstrip the US in the education of engineers? Of course we lead in self esteem awareness, that should do the trick!

Watch the movie Pirate of Silicon Valley to learn how Gates and Job really got their start, both essentially stole or bought ideas from someone else.  Today MSFT has introduced VISTA and charged us for it essentially requiring you and I to start all over again on re learning yet another interface. No thanks I believe I will stop at XP.  Dr. Deming would have had MSFT improve on xp, not start over. How long before a China produced LINUX system finally puts the big britches on Ballmer et al.

Wall Street would like you to believe they know what they are doing.  A glance at bank and brokerage stock prices suggests otherwise. Since I started following the industry in 1973 it has always been so.  Wall Street piles on workers on the way up only to discard them as prices fall.  The oil industry did the same thing in the 1970s and 1980s, slashing any and everyone in 1986 and again in 1998. Now anyone who remembers those days will not work in the oil  industry. And so they are relegated to newbies coming out of college or millenials with no particular education at all, or memory. Forbes details the latest round of cuts. I suspect that one if the data were readily available, could graph employment on Wall Street as a leading indicator of the next stock market top.  A first derivative, a rate of change like Moving average convergence divergence, would tip us off.  However I doubt we will see those oracles of Wall Street develop an indicator based on their own false optimism.

HIring an employee should pattern the same way Warren Buffet buys stock in a company. Okay, if the overall market fell 25% after you bought, would you still want to own it?  Most companie slash employment when their business declines. The better move would be to only hire employees when there was a definite long term plan.  Manufacturing companies now use temps for that reason. But for longer term employees, most firms see employees as liabilities. Until we can establish human capital as an asset, it will always be this way.

I can’t say that I am a fan of Jim Cramer (thestreet.com), his out of the park sceaming style does not appeal to me, where is Lu Rukeysar when I want him?  But Cramer suggets a solution to the housing debacle in this piece.  I can see at least two big problems with his solution, the effect on the US Dollar (it would surely weaken it further) and the same thing Soros said, at some point investors in our debt will revolt and demand higher interest rates. Debtors do not have the luxury of doing anything they want and the US is a world wide debtor.

I have enjoyed reading the comments and articles that Intermed II posted on WEB CT. Most of you favoring regulation did not have a specific idea like Cramer, apparently the FED does not either as he points out. And most of you were in the camp of most economists suggesting this is really not much or that responsible folks are more likely to pay debt or save, than spend.

ACCT 5130 thre is now a discussion tab up on your web ct site.  Paste your article in the comment section so folks can reply to your article in threaded fashion. It is only required that you respond to one but a I said you will be graded on the quality and participation of your responses. I am certainly open to suggestions about future topics.   In the two managerial clases the next topic will center of Deming’s Total Qualtiy Management Ideas. The handout on Deming is posted on WEB CT for you under Assignments or Handouts.

I hope that you are finding this exercise to be worthwhile, clearly it is sparking lots of opinions that we would not get to hear in the short time we have together each week.

Jerome Kerviel has lost Societe Generale, the largest bank in France, about $7.2 B.  Jerome learned the audit trails for the bank in his first job, he went on to become a trader in futures, earning $145,000 a year. Described by his professors as brilliant, he covered his tracks using his knowledge of how the bank’s reporting system worked.  The recent collapse in markets brought the losses to light. Oddly he did not personally profit from all the schemes.

You will have to click to enlarge the image at left. I learned some more after posting the above item about the bigget bank fraud ever. This item highlights the importance of receiviing correct information for basing decisions.  Societe General had $7.2 B worth of stock that it did not want to hold as a result of the fraud. And so on Sept 21, a day whe US markets were closed, it proceeded to ell a massive amount of stock. You can see the spike down in prices on the CAC French stock exchange that day.  The American FED however had no knowledge of this one large sale that, occurring in markets that were already falling, the sale only accelerated prices dropping. The selling was not confined to France as the stocks were held and sold in various Euro exchanges. So, the FED eyeing the big drop in Europe decided something absolutely had to be done. And that is why the FED dropped rates 3/4  point for the first time since 1984.  Asked if they would do anything different, of course they responded that they were content with their actions. Now, European Central Banks have not cut rates. So this is also an example of not regulating and stimulating but letting the markets sort things out.  I pointed out in class that with this latest cut the FED only had this option left about four times before money would essentially be free.  Correct information is essential to good decision making.  This is an incredible story of how the fraud of one individual, undetected by Societe’s Internal Auditors, caused a shot heard round the world. This is why accountants and auditors, both internal and external, have a public responsibility to act ethically and exercise their oversight function.

Updates on this case click here

Meawhile right here in DFW an Arlington real estate appraiser was sentenced to five years in prison. Gandhi Ben Morka would appraise a house far beyond its actual value.  The schemers targeted the home at a  lower price, took out the mortgage, paid the original owner, then pocketed the rest. In addition he must re pay $2.3 M to Countrywide Financial.  Others have been previously sentenced in the case.

My take.  Fraud is usually perpetrated by those one would least expect. This is the reason  the phrase ‘professional  skepticism’  should be used by a good auditor.   It is true that fraud has three cornerstones, opportunity, the urge to meet an artificial goal, and the ability to rationalize the act. That though is the description of an individual usually acting against the company or shareholders. The real estate case is one of just plain white collar crooks seizing an opportunity to turn the greed of lenders on themselves.  The same thing happened right here in Dallas with the land flips of the 1980s.  Apparently Countrywide did not employ anyone with enough experience to remmber those deals.  Bubbles bring fraud as swindlers let greed sweep lenders and bankers off their feet.  And of course, greed gets to the swindlers that are caught.  We will no know how many managed to stop just short of being caught and get out of town. 

In ACCT 5130 for some reason the dicussion Tab got eliminated when the WEB CT course content was posted.  The discussion tab has now been renewed and is in place. There you will find the first topic on Regulate Stimulate.  Instructions are there, hit reply and post your paper in the comment section. There should be a separate comment section for each paper. I suggest you compose, correct and use the grammar and spell checker in MSFT Word. Save your papers in a folder on your desktop for this class.  The cut and paste into the comment section.

E mail me here if you have problems.

dennis.elam@att.net

dle

Let me reassure you I am acutely aware that WEB CT is working on and off. Several of you have notified me that you cannot locate the assignment to post your paper on WEB CT. I know I put it under the Discussion Section but alas I cannot access WEB CT to verify that. 

I assume that at some point Shane Jester, assuming that is the name of the poor soul trying to get all this to work, will in fact slay the cyber dragons that are keeping this from happening. Until then write your papers and you can e mail them to me here at delam@unt.edu so I can at least get started reading.

My take on all high tech devices is a quote from someone who fought in Korea and Viet Nam

Once the shooting starts, if it is any more complicated than a manual can opener, it won’t work.

No kidding. I would equate the start of school with 33,000 students trying to access WEB CT as a pretty good shoot…..

You might think McGraw Hill would be happy to sell $150 textbooks, I guess not.  Seems structured finance revenue is not what M H had hoped for?  Structure finance revenue?  Apparently MH Has been playing the debt markets weary of that boring textbook market I guess.  The stock is down from the 70s to 38 bucks. One thing I have learned over the years, when a firm leaves its area of expertise, the results are usually that they and the stockholders get an expensive learning curve. Tend to what you know hot to do, just ask H and R Block which is suffering similar calamities.

Here is EY’s explanation of Structured Finance.   My guess is that MH tried to be a player in putting such deals together and ended up with worthless IOUs, now that would cause a 50% decline.

Well here is one clue, M H owns Standard and Poors, seems there will be les demand for bond ratings with less debt being issued, but that hardly explains the waterfall drop in MH stock price, read here.

Hmm, more on M H via Business Week Blues.

This stock has not declined 50% in six month because the phones are not ringing as often at S & P.  There is something else seriously wrong but I cannot locate what it is in these articles, take a look at the chart and you will see what I mean.

Business Week reports on withdrawals from mutual funds.  Most stock is owned by mutual funds so when investors bail, those funds sell stocks for cash.  Until those investors decide to put their money back in the market it will likely fall. Are they won over by the bail out stimulus plans yet?

Students are supposedly reading news on the internet, did you read this article before I pointed it out?