We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
Our Recent Essays Behind the Front Page
Tuesday, December 4. 2012
Especially at the expense of their clients, New York lawyers work through the nights protecting against all probable, possible and improbable contingencies. They are also covering their little fannies. However, our lawyer (the one with a sense of humor) was reviewing a corporate note and security agreement from the 1990s and found the following ultimate (in more ways than one) example. It cannot have been an amicable negotiation!
Posted by Kondratiev in The Culture, "Culture," Pop Culture and Recreation at 16:38 | Comments (4) | Trackbacks (0)
Thursday, October 11. 2012
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today."
Monday, March 21. 2011
I bought a bird feeder. I hung it on my back porch and filled it with seed. What a beauty of a bird feeder it was, I reflected as I filled it lovingly with seed. First came the chickadees and then within a week we had hundreds of birds taking advantage of the continuous flow of free and easily accessible food.
But then the birds started building nests in the boards of the patio, above the table, and next to the barbecue.
Then came the poop. It was everywhere: on the patio tile, the chairs, the table. Everywhere!
Then some of the birds turned mean. They would dive bomb me and try to peck me even though I had fed them out of my own pocket.
Other birds were boisterous and loud. They sat on the feeder and squawked and screamed at all hours of the day and demanded that I fill it when it got low on food.
After a while, I couldn't even sit on my own back porch anymore. So I took down the bird feeder and in three days the birds were gone. I cleaned up their mess and took down the many nests they had built all over the patio.
Soon, the back yard was like it used to be: quiet and serene.
Now let's see. Our government gives out free food, subsidized housing, free medical care, free education and allows anyone born here to be an automatic citizen.
Then the illegals came by the tens of thousands. Suddenly, our taxes went up to pay for free services; small apartments are housing 5 families; and you have to wait 6 hours to be seen by an emergency room doctor. Your child's 2nd grade class is behind other schools because over half the class doesn't speak English.
Corn flakes now come in a bilingual box; I have to 'press one' to hear my bank talk to me in English, and people waving flags other than 'Old Glory' are squawking and screaming in the streets, demanding more rights and free liberties.
Just my opinion, but maybe it's time for the government to take down the bird feeder.
Photo is from Best Nest, the official Maggie's Farm-endorsed source for bird houses and bird feeders
Saturday, January 29. 2011
Saturday, January 22. 2011
It is time to discuss the developments in the Chinese People's Liberation Army Navy and its urgent drive toward sea control in Asian waters. I believe that it is only a matter of time before the People's Republic of China invokes a duplicate of the Monroe Doctrine for all of Asia. [For those educated in the past couple of decades, the 1823 Monroe Doctrine stated that efforts by European countries to colonize land or interfere with states in the Americas would be viewed as acts of aggression requiring U.S. intervention].
The media is focusing on the new J-20 Stealth fighter, and appear to have forgotten that "the Chinese have built, tested and are on schedule to deploy next year a missile designed to kill an American carrier. The Dong Feng 21D, according to published reports based on Chinese sources, could penetrate the carrier's existing antimissile defenses from 900 miles away
with a nonnuclear precision warhead. A version of this missile was seen publicly for the first time in a Chinese military parade last year. American defense analysts acknowledge that this missile could be a game-changer, immediately affecting American naval operations within 1,000
miles of the Chinese coast." .
In fact, the government is not paying attention either. "On Feb. 11, 2010, the ... U.S. Missile Defense Agency airborne laser in a Boeing 747-400F successfully shot down a sea-launched liquid-fueled ballistic missile in ignition stage (within two minutes of launch) and, within one hour later, shot down a solid-state land-launched rocket. . . .
"Once in office, Obama cut the program's budget, eliminated a second airborne laser 747 and scaled back the ground-based antimissile weapons scheduled to be built in Europe to defend against Iranian threats, and in Alaska to counter North Korean missiles aimed at Los Angeles and Seattle. After the successful February 2010 test, no further tests were scheduled or
conducted by the administration. Obama's proposed 2011 federal budget eliminates all funding for laser-based antimissile weapons systems." 
Completely forgotten now are the 81 (in 2009) Australian designed (thanks, mates) high-speed wave piercing 140 ft. catamaran missile boats which carry 8 anti-ship missiles each - that's 480 missiles, which can be fired from a distance of 100 miles .
The USS George Washington Carrier Strike Group homeported in Yokosuka, Japan, is composed of the carrier plus two guided missile cruisers (CG), seven guided missile destroyers (DDG), an attack sub (SSN) and an oiler ; that makes eleven surface targets. Each combatant ship is equipped with two Phalanx 20mm radar-aimed guns (Close In Weapons System) able to fire off
their full magazine of 1,550 rounds in 20 seconds for last ditch defense, plus a variety of missile launchers firing 500-1,500 pound missiles with ranges of 5 to 15 miles.
The argument could be made that 480 incoming missiles could overwhelm the strike group's defenses!
"Well, one might certainly say, "the Chinese certainly aren't going to go to war with a country that owes them over one trillion dollars." Agreed - they aren't going to go to war! But there's a lot of conflict that falls short of war. Remember when the Israelis deliberately sank the USS Liberty?
"[Chinese] PLA planners are focused on targeting surface ships at long ranges. US DOD analyses of current and projected force structure improvements suggested as of 2007 that in the near term, China was seeking the capacity to hold surface ships at risk through a layered defense that reaches out to the "second island chain" (i.e., the islands extending south
and east from Japan, to and beyond Guam in the western Pacific Ocean).
The Chinese were offended at the US Navy's proposed exercises in the East China Sea off the western coast of South Korea in November, 2010, and so the US moved it to the east side of Korea. If the US hadn't cooperated, or if conflict arose in Korea or Taiwan, one can imagine the Chinese saying that those countries are in China's Exclusive Economic Zone (EEZ), and that
although they sincerely wish to retain trading and financial relationships with the United States, any intrusion of US forces into those territorial waters would be an aggression which could and would repulsed by what will shortly be credible force, even as our countries remained at peace.
I believe that the current government of the United States would capitulate and remain outside whatever EEZ China declared, and that our influence in Asia will be at an end unless measures are taken today to restore and expand our missile defense capabilities.
Monday, October 4. 2010
Kondratieff has received his $250
Thursday, September 30. 2010
Stratfor: "European Terror Threat Overstated".
Wednesday, May 5. 2010
I was watching TV clips of the Greek riots. The bottom line rationale of the Greek rescue effort is the transfer of known and predictable near-total losses on Greek debt from the investors, banks and governments holding that debt to the taxpayers of the EU and the taxpayers funding the IMF in order to try to protect the euro until the next crisis.
Kondratiev's predictions are:
1. There is no way Greece will ever repay the $146 billion; either (a) the austerity measures if accepted and complied with will plunge the country into deep recession, or (b) the general strikes that the austerity measures inspire will cause depression.
2. In either case, the Greek government will fall for agreeing to the austerity conditions, and the government that gets elected will repudiate both the austerity measures and the euro. Because the European Central Bank is not the issuer of euro notes and because that function has been left to individual countries, all Greece needs to do to "unpick" from the euro is to declare that each Greek-issued euro note (one with a serial number starting with "Y") is now a drachma note and will be exchanged 1-for-1 by the Bank of Greece.
3. Then Greece will go back to devaluing and inflating and devaluing and inflating just as it used to do.
The euro has been fabulous for European trade, but with a majority of Germans polled saying they opposed the Greek bailout, something will have to give. I hazard a couple of guesses, first that the euro might split into a soft euro for the PIIGS and a hard euro for the other countries, or that the rest of the PIIGS would follow Greece and return to local currencies.
Bottom line: if you are holding any "Y" euro notes, deposit them in your bank as soon as you can for their full face value.
Thursday, June 18. 2009
I grabbed this photo of Jim Clark's 289' Athena (built in 2004 by Royal Huisman Yard) in Newport, RI this weekend -
Posted by Kondratiev in The Culture, "Culture," Pop Culture and Recreation at 16:18 | Comments (4) | Trackbacks (0)
Wednesday, June 17. 2009
Kondratiev (once a JAG Corps Lieutenant Commander) got a rare opportunity this week to attend a “Current Strategy Forum” which is periodically put on by the U. S. Naval War College in
Panel discussion members included Stephen Walt, Harvard University; G. John Ikenberry, Princeton University; Mitchell Reiss, The College of William and Mary; Donald Kagan, Yale University; Eliot Cohen, Johns Hopkins University; Daniel Byman, Georgetown University; Michael Doran, New York University; Thomas Fingar, Stanford University; Shibley Telhami, University of Maryland; Michael O’Hanlon, Brookings Institution; Thomas G. Mahnken, Johns Hopkins University; and Patrick M. Cronin, National Defense University. The conference was a spectacular demonstration of the talent the U.S. Government can bring to bear at this time, regardless of the party in power.
Focusing on the Greg Mortenson talk, NBC newscaster Tom Brokaw calls Mortenson "one ordinary person, with the right combination of character and determination, who is really changing the world." In a 1993 climb of
Since 1993, Mortenson has dedicated his life as a humanitarian devoted to promote education, especially for girls, in remote, volatile regions of Pakistan and Afghanistan, and as of 2007, Mortenson had established 58 schools in rural Pakistan and Afghanistan, which provide education to over 24,000 children, including 14,000 girls, where few education opportunities existed before.
His efforts (and the efforts of others like Educate Girls Globally) have been generally received well by the Afghans and the Pakistanis. Although the MSM doesn’t have time or space to report it, in year 2000, 800,000 Afghani children attended school. In 2008, 8,600,000 were attending school, and of these, 2,300,000 are girls.
It has not been easy. In 1996, he survived an eight day armed kidnapping in the
Mortenson is a living hero to rural communities of
His cross-cultural expertise has brought him to speak on U.S. Capital Hill, national think tanks, the Pentagon, the Department of Defense, the U.S. State Department, libraries, outdoor groups, universities, schools, churches, mosques, synagogues, business and civic groups, women's organizations and many more.
As General Conway said, he, Admiral Mike Mullen (Chairman of the Joint Chiefs), and others in high places all read Three Cups of Tea (which has been on the NY Times best-seller list for 123 weeks) on their wives’ recommendations, but this essay comes from the discovery that they are all taking it very, very seriously!
It was the view of Professor Michael Doran, another speaker with broad State Department experience, that the State Department is an entity which exists to “negotiate behind closed doors with duly appointed representatives of recognized governments”. As an organization whose mission is “process”, success or failure are not important considerations – they are just a part of the process.
However, for the military on the ground in the
Admiral Mullen, General Stanley McCrystal, General Conway and one other top guy (I missed his name) have visited
Speaker after speaker among the academics agreed that it was only the
Incidentally, Greg is from
Saturday, February 28. 2009
Question re Cap & Trade: why would corporations mind paying a carbon surcharge? They will simply pass it on to consumers as a price increase and have a net cost of zero.
Answer: Passing the cost to consumers, which they must do, will make domestic American products more expensive in comparison to imports and will result in reduced sales.
Unintended consequences: 1. To the extent that production can be shifted to foreign companies or foreign plants of US companies, jobs will move overseas. 2. With respect to domestic production, the result will be wildly inflationary. 3. Because cap & trade fees allow pollution to continue, the environment will not benefit (but it is becoming clear that
Photo: That's our Kondratiev
Thursday, November 20. 2008
Kondratiev thought he’d check in on how Honda was doing while the Detroit Three were begging scraps from Congress. Not bad -- on October 27, 2008, Honda Motor Co., Ltd., announced a summary of automobile production, Japan domestic sales, and export results for the month of September 2008 and the first half of the current fiscal year (April-September 2008), including all-time records for worldwide auto production and production in regions outside of Japan for the first half of a fiscal year.
Honda Motor has announced that its worldwide vehicle production for the year-to-date increased 3.4% to 2,985,638 units, compared to the same period of 2007. 915,574 of those cars were made in
Wednesday, July 2. 2008
The Supreme Count in its landmark case
There seems to us no doubt, on the basis of both text and history, that the Second Amendment conferred an individual right to keep and bear arms. Of course the right was not unlimited, just as the First Amendment’s right of free speech was not. Thus, we do not read the Second Amendment to protect the right of citizens to carry arms for any sort of confrontation, just as we do not read the First Amendment to protect the right of citizens to speak for any purpose.
Like most rights, the right secured by the Second Amendment . . . was not a right to keep and carry any weapon whatsoever in any manner whatsoever and for whatever purpose. For example, the majority of the 19th-century courts . . . held that prohibitions on carrying concealed weapons were lawful under the Second Amendment or state analogues.
It is therefore probable that state “shall issue” laws and other concealed weapon “carry” laws are discretionary, and not supported by the Second Amendment.
Next, “assault weapon” laws which ban ownership of semi-automatic rifles because they are ugly or scary-looking are clearly supported by Heller.
We also recognize another important limitation on the right to keep and carry arms. Miller said, as we have explained, that the sorts of weapons protected were those “in common use at the time.” We think that limitation is fairly supported by the historical tradition of prohibiting the carrying of “dangerous and unusual weapons.”
. . . weapons that are most useful in military service—M-16 rifles and the like—may be banned . . ..
Looking at Part III of the Heller decision, we can see the future of gun control efforts: The clause allowing “laws imposing conditions and qualifications on the commercial sale of arms” could well be taken as permitting registration of purchased firearms, limitations on quantities owned and possibly buyer qualification (such as requiring drivers licenses for cars). Of course, gun advocates have long feared registration as a pre-cursor to confiscation (as happened in
Heller therefore is a narrow decision permitting handguns to be kept at home for defensive purposes, and should not be read as securing a broad right to hunt or even to carry arms for any non-defensive purpose.
Photo: A Browning M2 machine gun, still not available for home defense.
Friday, April 25. 2008
I read the Los Angeles Times article we linked about how the Bush administration failed to protect New Orleans, and it just didn’t smell right. We looked into the departmental files and found a clipping from a blog called MemeFirst, and it reminded us of the Save Our Wetlands lawsuit where a wise Federal Judge stopped the Corps from building proper dikes.
Some of you will recall that in the comments section of this post last week, I mentioned that flood planning and abatement measures take decades to build, and I wrote that I wouldn't be surprised to find out that relevant planning decisions went back to the Carter or Reagan administrations. Actually, it was the administration of Lyndon B. Johnson that set in motion the modern flood protection system for New Orleans - or at least the flood protection system that New Orleans was intended to have. After Hurricane Betsy in 1965, Congress approved and Johnson signed a law to build the Lake Pontchartrain Hurricane Barrier Project to protect New Orleans from future catastrophic hurricanes.
The centerpiece walls and gate systems mandated by the bill, however, were never built. Why?
A lawsuit begun in the mid-70s by environmentalists stalled development well into the 80s. After nearly a decade of litigation that prevented implementation of the plan, the Army Corps of Engineers finally threw in the towel and shifted to a compromise plan that had less of an "environmental impact." Some protection, after all, was better than none. Bottom line, the federal government had a plan to protect New Orleans from hurricanes like Katrina, but was unable to implement it due to interference from local environmentalists and the local judiciary.
The environmental group that brought the lawsuit - the now-ironically named "Save our Wetlands" - hasn't yet taken down the web page boasting of shutting down the Lake Pontchartrain Hurricane Barrier Project. In the document, the group claims that because its attorney broke down and wept in front of Judge Schwartz, he issued an injunction that shut down hurricane barrier construction. Here's the text:
...And also the reason New Orleans does not exist today.
Getting-what-they-want-by-crying has been the modus operandi of the environmental movement in the U.S. for decades, figuratively speaking. In this case, environmentalist do-gooder busybodies actually cried to get what they wanted. On a lark I used Google Earth to investigate the fate of the home of the presiding judge - Charles Schwartz, Jr. - which backs up on the Metairie Country Club. It's still standing, but he'd better find himself a pair of waders, especially if he plans on playing the back nine anytime soon. Who's crying now?
The left-wing think tank, Center for Progressive Reform, takes the position that the injunction was simply a minor annoyance that would shortly have gone away, but also reveals that the left, the enviro-loonies (and the local Democrat machine) had mounted fierce opposition to the Corps.
Let us look at the sentence that starts with “It is beyond dispute that”. Has the dear reader previously noticed how the left loves that phrase? The actual translation is, “I don’t want to talk about it!” That in turn relates to the fact that the speaker actually lacks the facts, the logic, or both to dispute it. The writer would have us believe that if the Corps had merely written a more extensive (expensive) environmental impact statement, the litigants would have happily dropped their complaint. Anyone with even the most passing familiarity with environmental strike suits knows that complaining about the EIS is merely the opening gambit for litigation designed either to stop a project altogether or to make it too expensive for the proponents to proceed.
The Corps chose to drop its fight and comply with the community’s expressed wishes, for which they are entirely unwilling to accept the consequences. In fact the city sued the Corps for $77 BILLION in damages for its actions, but in an article February 1 entitled “In Court Ruling on Floods, More Pain for New Orleans”, the Times sniffs, “There is disappointment but little surprise in New Orleans after a federal judge grudgingly absolved the Army Corps of Engineers of liability in the flooding of the city after Hurricane Katrina.”
The leftyloonies at the Times (and the federal judge) appear to actually believe that the Corps of Engineers should be held liable for damages to New Orleans for conceding that it had lost a lawsuit
Tuesday, April 22. 2008
What is Constitutional and What is Unconstitutional in Eminent Domain?
FindLaw, a web-based subscriber source of legal materials, gives us some details on the use of eminent domain for redevelopment purposes: “The Supreme Court has approved generally the widespread use of the power of eminent domain by federal and state governments in conjunction with private companies to facilitate urban renewal, destruction of slums, erection of low-cost housing in place of deteriorated housing, and the promotion of aesthetic values as well as economic ones.”
The principles applied by The Supreme Court in Kelo go back as far as 1810 when in Custiss v. Georgetown and Alexandria Turnpike Co, the Court stopped a district court from interfering with the taking of private land for a private turnpike. Similar cases are Clark v. Nash, 198 U.S. 361 (1905) (a water ditch), and Mt. Vernon-Woodberry Cotton Duck Co. v. Alabama Interstate Power, 240 U.S. 30 (1916) (power company).
In Berman v. Parker, 348 U.S. 26 (1954) the Supreme Court states, “The District of Columbia Redevelopment Act of 1945 is constitutional, as applied to the taking of appellants' building and land (used solely for commercial purposes) under the power of eminent domain, pursuant to a comprehensive plan prepared by an administrative agency for the redevelopment of a large area of the District of Columbia so as to eliminate and prevent slum and substandard housing conditions - even though such property may later be sold or leased to other private interests subject to conditions designed to accomplish these purposes.”
All these cases, however, are united by a principal of the courts deferring to the decisions of the legislatures as to what constitutes public use, or “public convenience and necessity”, the criteria for eminent domain. Elsewhere in Connecticut, a vast swathe of central Stamford was taken by eminent domain for urban redevelopment purposes by the Frank Rich Company, and Stamford was transformed in terms of economic growth, employment and culture. It hosts the US headquarters of UBS (with the largest trading floor in the world) and UBS is about to be joined by the Royal Bank of Canada’s headquarters, and there are so many jobs that people commute 90 minutes or more to work there. It was tough on the homeowners in central Stamford, but a great boon to the public at large.
Justice O’Connor’s dissent in Kelo distinguishes Berman by its slum removal goal; public use in her view was not just building something to create an economic resurrection of an area of Washington, it also got rid of some nasty ugly old buildings.
However, note that Kelo really makes no change in judging the Constitutionality of a taking; it will continue to be determined by someone’s definition of “public use”. The SCOTUS majority chose to defer to the local representatives of the public in this case. This is a step back from the Court’s recent activist role, and I think it is healthy. When an issue before a court revolves around interpretation by individual decision makers of whether a proposed use of land is or is not public enough, I favor deferring to the “boots on the ground”, the local authorities.
Arch-liberal Edward Lazarus actually makes my point:
Continue reading "A reply to some of our readers, and more on Kelo and eminent domain"
Sunday, April 20. 2008
Our News Junkie linked to a long and carefully researched property rights article in American Thinker. It is an eloquent complaint about the Kelo decision where pursuant to
Second, and more important, is that the US Supreme Court in its Kelo decision merely decided to defer to state law. How many times do we conservatives complain when the Court overturns yet another state law for a newly discovered but unwritten federal “right”? If we in
Just think about the number of times we have been furious that the Anointed Nine in Washington have overturned yet another long-standing state law for transgressing yet another unwritten right, and shout, write or (now) blog the words of the Tenth Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”
We have to confront a serious question: is our concern for states’ rights limited to state actions of which we approve? If so, we must then accept our hypocrisy and join the liberals in acknowledging that having an end result we like is more important than the legal niceties of getting there, and watch as the Age of the Rule of Law comes to an end.
Photo: Our recently-new Maggie's Farm contributor Kondratiev. We are fortunate to have such an eminent fellow on board. He meets our criteria, which are that he can shoot, write grammatically most of the time, and plow a straight furrow on our CT tobacco farm, with two cranky mules.
Thursday, April 17. 2008
It all started with Enron. The company was just too clever and set aside moral scruples in a feverish drive to maximize reported (as opposed to real economic) earnings.
The next step was auditors, who traditionally were employed by companies’ boards to check the math in the financial statements and ensure that balance sheets balanced.
Occasionally, under suspicious circumstances, they were instructed to conduct what were termed “fraud audits”, where they really took a close look at things like cash, receipts and bank accounts to see if someone was cheating or embezzling.
When Enron’s frauds came out, there was a frantic drive to find someone with significant economic resources - other than Enron’s crooked officers - who could be blamed. Enron’s auditors, Arthur Anderson, long reputed to be the toughest firm in the country, took the hit for not identifying the frauds they were not paid to investigate. Lawyers and frantically grandstanding officials declared Anderson to be guilty, and applied a pre-trial death penalty for the entire firm for the conduct of the partner on the Enron account. Not only was this in gross violation of the U.S. Constitutional requirement of a fair trial, it was enforcement of a notion of collective guilt previously unseen in Western democracies, and it put thousands of Anderson’s innocent employees out of work. As the gentle reader might recall, Anderson received a post-mortem judgment of “not guilty”.
Well, the accounting profession was not pleased, and began to look for a way to strike back.Next, the Securities and Exchange Commission got involved. The SEC had been established to ensure that securities offering documents and corporate reports to shareholders contained full disclosure. Accused by the press and Congress of lax enforcement, the SEC sought to find a way to co-opt the private sector as enforcers of Federal securities laws, and found lawyers and accountants an easy choice, declaring them responsible for finding and reporting any corporate hanky-panky that might be occurring, making corporate advisors into government snitches, and vastly increasing their risk of doing business.
Again, the accounting profession was not pleased, and its counter-attack came when accounting standards boards around the world invented (over corporate objections) a new system they thought was more theoretically pure, called “fair value accounting” with particular aim taken at the recent innovations in financial derivatives. These rules require assets to be valued at whatever someone will pay for them at any given moment.
As an example of the impact of Fair Value rules, if the Kondratiev family were a public company and - like a lot of people - not able to sell our house right now, we would have to write its value way down and take an “accounting loss” for that entire amount, making us technically bankrupt even though we know the house will indeed sell this year or next. Fortunately as a family, we don’t have to follow those moronic rules, and can wait and live in our home until the housing market recovers.
What’s worse, if a public company owns some sophisticated assets like esoteric options that don’t trade often, the rules require that they value them in accordance with a black-box mathematical model – and isn’t that the greatest opportunity for fraud yet invented? Then, if it later happens that there are few buyers of those options, accountants will require around 55% write-off in their value, even if the underlying assets have not diminished in value. Remember when some banks were required to write down assets fully secured by US Treasuries?
Nevertheless, our ivory-tower CPAs hold that regardless of a notion of long-term real value, if you cannot sell something today it has little – or no – value. Just look at the ultimate market proof that that notion is intrinsically false – private equity funds are snapping up these securities by the armload as soon as the banks write them down, and Kondratiev confidently predicts that some Great Fortunes will be made by those funds over the next three years. Business Week will predictably have a cover feature on the brilliant investors who gambled on purchasing deeply-discounted, scorned securities and against all odds won big. Ja. Remember where you read it.
To make a long story short, between SEC rules and new accounting standards, company financial statements are now unreadable by almost everybody except a tiny group of trained professionals, and companies are now having to add annexes to their financial statements that say things like "our audited statements are presented in accordance with Generally Accepted Accounting Principles, but as such they are not useful in managing our business, so the following figures are the (unaudited) numbers we actually use to manage our business.”
Furthermore, and more importantly, the accounting deck has now been so stacked that every possible financial negative is emphasized and every possible financial positive is deferred. The result for us analysts and investors is that current financial statements are for most part presented in a way that grossly understate the real worth of companies.
“But,” you may well ask, “how did Bear Stearns so overvalue its assets?” Answer: it didn’t. Bear Stearns owned pools of residential mortgages, yours and mine, that might have a default rate of 5% in hard times, 15% in a depression, and was forced to write them down to nothing simply because, like our house, nobody was buying that day. As we wrote earlier this week, Bloomberg and everybody else (except the accounting rulers) knows that the foreclosure rate is expected to be 1.99%, which means that JPMorgan as purchaser of Bear will probably collect over 99% of the face amount of these mortgages, even if the foreclosed properties sell for half the loan balance. Only an accountant could insist that those mortgage pools had an accounting value of 40-45%.
Thousands of innocent people will be thrown out of work due to an intellectual ivory-tower artificiality perpetrated by the Financial Accounting Standards Board and the SEC.
The accountants’ revenge is complete.
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