The word is the US might have to adopt IFRS. By mid 2011, the SEC will take the decision. Then 5 years to implement the shift.
There was love at first sight when I saw that some of the US GAAP rules are implemented by statistically looking at their use in the markets.
IFRS allows for immediate recognition of the gain or loss in a sale-leaseback operating lease transaction. They are two transactions; therefore, they "must" be independent. You can recognize a gain because the sale of the asset is completely independent from the lease back even though you never lost the asset.
On the other hand, the musical complexity :) of FASB did statistical analysis in the field and found that the great majority of the companies recorded both transactions at the same time (the sale and the leaseback of the asset). Given that every company has both transactions at the same time, it makes it one. The sale looses its immediate overall economical substance because it is tied to future payments. Therefore, FASB simplifies the world by recognizing it is not a sale and a leaseback of an asset. It is financing. You get a chunk of money, you keep the asset, and you make payment as if it was any other debt. The gain on the sale has to be amortized along the "debt" payments.
It is not just a a matter of implementing someone else's rules. It seems there is a major difference in the approach. The agility will be lost.
I believe in Principles. Some things are wrong. If they are not spoken and written that way, after a few years, people start to get comfortable with the proximity to the limit. But at the same time, principles are also the random punishment machine of the state. Without very clearly specified rules, Principles become the reality show of who is cool at the moment, and the uncool is left without specific rules to know you are safe.
Five or Six years is also the hibernating time for a trip to the land of Pandora. Is it a coincidence, or we are just being prepared for the journey to La La Land?
Tuesday, December 28, 2010
Monday, December 20, 2010
More numbers
Brown - previous UK Prime Minister (while promoting his book, but still):
"In 10 years, Asia's consumer market will be twice the US's consumer market."
Only 10 years. It is just too fast. This is at the same time that we are expecting the US and Europe to contract, reduce spending and hope for the best. At this rate Asia will be the center and the edge. US and Europe would be tourist attactions. Can those societies handle the wealth and the influence? They have so far.
"In 10 years, Asia's consumer market will be twice the US's consumer market."
Only 10 years. It is just too fast. This is at the same time that we are expecting the US and Europe to contract, reduce spending and hope for the best. At this rate Asia will be the center and the edge. US and Europe would be tourist attactions. Can those societies handle the wealth and the influence? They have so far.
Sunday, December 19, 2010
The Enlightment of Independence
New research seems to highlight the fact that financial companies with independent boards and directors tend to undermine corporate governance and stock performance even though independence has been seen as the fix for these issues. This happens at the same time of pushing for procedures in the name of the goals.
This always reminds me that the best example of independence is a homeless person. Having no stake in the outcome, an independent board can have their own metrics to follow even when convinced that their goals and the company's objectives are the same. The same fact of their independence makes them unregulated about the results. Independence by itself gives you exactly that, independent results.
In worse cases, independent directors are the magic bullet as independent reporting tools. But relying on a person specifically for his/her decision making is increasing the risk. Corporate governance is a process to be tuned up along the way not directed.
In Spanish we have a saying: The watchful eye of the owner feeds the horse. The agency problem is not fixed by an independent body with no stake that replaces the owner's responsability. It is fixed by a body that is responsible for independently overseeing the already in place corporate governance.
This always reminds me that the best example of independence is a homeless person. Having no stake in the outcome, an independent board can have their own metrics to follow even when convinced that their goals and the company's objectives are the same. The same fact of their independence makes them unregulated about the results. Independence by itself gives you exactly that, independent results.
In worse cases, independent directors are the magic bullet as independent reporting tools. But relying on a person specifically for his/her decision making is increasing the risk. Corporate governance is a process to be tuned up along the way not directed.
In Spanish we have a saying: The watchful eye of the owner feeds the horse. The agency problem is not fixed by an independent body with no stake that replaces the owner's responsability. It is fixed by a body that is responsible for independently overseeing the already in place corporate governance.
Friday, December 10, 2010
The possible and the impossible one
China's future risks lie in the empowering of the population of these cities. If we see them like a swarm of people buying and selling, and investing capital, the consequences are extraordinary while everyone keeps watching for the macro risks.
However, empowering at this lower level cities is uncertain because implementation of rights occur in societies through courts, contract law, and law enforcement to protect the decision of the legislation and the rights of the individuals all the way to the bottom. People talk about China as an experiment. Nobody has been able to do democracy with a billion people. Even the US had to have the notion of state independence from the Federal government. It was probably the factor that allowed the Union to survive all the ups and down suffering the threat of separation.
Russia always had a more promising future than China. It was the second power in the world. It always had the highest level of engineers, scientists, and resources. Tetris was invented by a Russian for God's Sake! What would we have done without it?
And every time Russia enters the world stage, the local politics override all rights of the population and their "free agents". Sales of Vodka are some of the most profitable for small businesses. Then all the sudden in smaller communities vodka is prohibited to be sold until further notice. Local businesses and stores in shambles in a couple weeks. The details and the consequences of the arrest of oil moguls are just a serious warning to everyone else. What is interesting is that Russia might be after all more isolated and unique culturally plus more economically self-sufficient than China. China does have a party and factions and depends on Europe and the US for technology, education, and China is part of Asia. Russia still has the personification of political power in one person, it has all the brain power it can, and it is part of...itself.
Free societies become commercial powerhouse because nobody knows for sure who is the right person or who has the right idea. The whole idea of a capitalist system is the fact that the market chooses, not political representatives, not judges, not your competitors, and not even your peers. This is why a capitalist society can only flourish with empowerment and without discrimination.
In order for these three hundred cities to spawn indefinite economical growth, there has to be freedom of choosing or as until now, western business that hold more rights to create and lobby than Chinese individuals.
As a note of hope, China has been introducing non-communist party members to the Central Committee. But it seems it is always so easy to revert back. The whole world watches China every elections, every crisis to see who will win in the inside and what actions will be taken. It would be nice to know the point of no return, and these three hundred cities will be for sure the future.
However, empowering at this lower level cities is uncertain because implementation of rights occur in societies through courts, contract law, and law enforcement to protect the decision of the legislation and the rights of the individuals all the way to the bottom. People talk about China as an experiment. Nobody has been able to do democracy with a billion people. Even the US had to have the notion of state independence from the Federal government. It was probably the factor that allowed the Union to survive all the ups and down suffering the threat of separation.
Russia always had a more promising future than China. It was the second power in the world. It always had the highest level of engineers, scientists, and resources. Tetris was invented by a Russian for God's Sake! What would we have done without it?
And every time Russia enters the world stage, the local politics override all rights of the population and their "free agents". Sales of Vodka are some of the most profitable for small businesses. Then all the sudden in smaller communities vodka is prohibited to be sold until further notice. Local businesses and stores in shambles in a couple weeks. The details and the consequences of the arrest of oil moguls are just a serious warning to everyone else. What is interesting is that Russia might be after all more isolated and unique culturally plus more economically self-sufficient than China. China does have a party and factions and depends on Europe and the US for technology, education, and China is part of Asia. Russia still has the personification of political power in one person, it has all the brain power it can, and it is part of...itself.
Free societies become commercial powerhouse because nobody knows for sure who is the right person or who has the right idea. The whole idea of a capitalist system is the fact that the market chooses, not political representatives, not judges, not your competitors, and not even your peers. This is why a capitalist society can only flourish with empowerment and without discrimination.
In order for these three hundred cities to spawn indefinite economical growth, there has to be freedom of choosing or as until now, western business that hold more rights to create and lobby than Chinese individuals.
As a note of hope, China has been introducing non-communist party members to the Central Committee. But it seems it is always so easy to revert back. The whole world watches China every elections, every crisis to see who will win in the inside and what actions will be taken. It would be nice to know the point of no return, and these three hundred cities will be for sure the future.
Monday, November 29, 2010
The fix that was
The biggest mistake was allowing the banks to survive untouched. By buying toxic assets, the US government became the primary customer eliminating the need to look for business. Government is a market segment. We made the banking system serve the government by having them sell to it. Getting book value on assets made better sense than risking capital for more complex transactions in the consumer or commercial markets. Now it is too late. We should have taught them to fish again, but we gave them supper.
If they were too big too fail, it doesn't mean they were too big to fail later on. I wonder what would have happened if the lower interest rates would have been given only to smaller banks to take on the giant banks. The big ones didn't lend anyways. At least it could have produced the debacle of the ones meant to fail plus the raising of a new breed simulating competition while diminishing the impact. Talent jumps ship anyways. But the smaller ones don't have the lobby capacity only the regulator's scrutiny. A new breed could make the regulation easier by growing with the new rules. Now we are left with regional and small banks failing while the big ones are sitting on their balance sheet with their new gargantuan ingestion of failed banks who continue to survive inside a bigger umbrella.
If they were too big too fail, it doesn't mean they were too big to fail later on. I wonder what would have happened if the lower interest rates would have been given only to smaller banks to take on the giant banks. The big ones didn't lend anyways. At least it could have produced the debacle of the ones meant to fail plus the raising of a new breed simulating competition while diminishing the impact. Talent jumps ship anyways. But the smaller ones don't have the lobby capacity only the regulator's scrutiny. A new breed could make the regulation easier by growing with the new rules. Now we are left with regional and small banks failing while the big ones are sitting on their balance sheet with their new gargantuan ingestion of failed banks who continue to survive inside a bigger umbrella.
Blindness
Presidents everywhere speaking for economists: Selling the package or containment procedure?
The Koreas and the waiting for China's help. S. Korea cancelled its planned exercise on THEIR Island after the N. Koreans "were done" with "theirs." Why? If the leaks show us anything is that is showing the cracks of Western influence in the world. The promise to improve America's standing in the world have left the US having to like everyone else. Iran... and meanwhile Israel is silent. Decades of soft stance have produced nuclear material. I just hope the increased investment in high tech warfare and the massive amount of engineers moving to certain areas have their milestones soon. I offer myself to test. I test for free speech.
The good news China is not trigger happy. Their own stability is more important, but eliminating the containment force of the US is not by any means a detriment to their interests.
Front pages of finance newspapers have politicians and possibly serious underplayed events. It means uncertainty. Finance news will always follow.
The Koreas and the waiting for China's help. S. Korea cancelled its planned exercise on THEIR Island after the N. Koreans "were done" with "theirs." Why? If the leaks show us anything is that is showing the cracks of Western influence in the world. The promise to improve America's standing in the world have left the US having to like everyone else. Iran... and meanwhile Israel is silent. Decades of soft stance have produced nuclear material. I just hope the increased investment in high tech warfare and the massive amount of engineers moving to certain areas have their milestones soon. I offer myself to test. I test for free speech.
The good news China is not trigger happy. Their own stability is more important, but eliminating the containment force of the US is not by any means a detriment to their interests.
Front pages of finance newspapers have politicians and possibly serious underplayed events. It means uncertainty. Finance news will always follow.
Monday, November 15, 2010
The compatibility of the missing science
Isn't this a clear sign that it might be time to change the current metrics used for policy.
If things are not working, it might be time to step back and make sure that what you saw painted on the Monet was a building. The same applies to policy makers. Maybe it is time to take a couple step back and look again to see what data they are following.
The deepest financial crisis. The government over spending which probably has let things roll longer. The head of the budget bureau saying we are tapped. There is not lending happening. US production is overseas. And some of the opinions in the Federal Reserve is that no market works on the current zero percent lending rate. What it really means is that things are not working now or they are about to stop working unless things get a bit harder.
Another study challenged the idea of the US ingenuity and creativity. It mentions how the majority of US force is not engaged on their work compared with previous research.
90% of the engineers and Computer Scientists will be working in Asia in the near future given the rate of foreign workers returning to their countries. This gets compounded with the graduation rate of computer scientists and engineers that graduate in the US which is 14% of the total of computer scientist and engineers that graduate every year in India and China (Even most of US graduates in computer science are foreigners).
We might just be in a transition period. There are new promising fields rising, and they might be the new propulsion engines. But still...
"Cheap dollar won't help US exports because US companies are mainly producing overseas."
There is something totally inverted about that sentence. Decades of economical thought might be rendered useless like a curtain at the end of a show when the lights go out.
Is the US stock market a reflection of the production overseas making us think it is the US industrial power? Has the time arrived when the Dow ends to mean what is supposed to? In a global economy, the meaning of the index of the largest American companies might stop representing the "American" locality leaving us following the wrong metrics.
Is the happiness of TARP being repaid making us think it was a good investment while the funds were generated outside US borders?
Things are changing. What used to work is not working. The characteristics of pre-emergent economies are showing up in the largest economy of all. It is like the IMF lending to Guatemala or Nicaragua to build infrastructure without hope of production or exports in spite of their depreciated currencies (The cigars did get really good. I am still looking for the Nicaraguan Hoja Cubana that disappeared. Maybe someone just had a good batch they had to get ride of at a discount). Anyways, coming back, regressing to the spontaneity of the absurd...
Time to come up with new science or science will be written of us.
If things are not working, it might be time to step back and make sure that what you saw painted on the Monet was a building. The same applies to policy makers. Maybe it is time to take a couple step back and look again to see what data they are following.
The deepest financial crisis. The government over spending which probably has let things roll longer. The head of the budget bureau saying we are tapped. There is not lending happening. US production is overseas. And some of the opinions in the Federal Reserve is that no market works on the current zero percent lending rate. What it really means is that things are not working now or they are about to stop working unless things get a bit harder.
Another study challenged the idea of the US ingenuity and creativity. It mentions how the majority of US force is not engaged on their work compared with previous research.
90% of the engineers and Computer Scientists will be working in Asia in the near future given the rate of foreign workers returning to their countries. This gets compounded with the graduation rate of computer scientists and engineers that graduate in the US which is 14% of the total of computer scientist and engineers that graduate every year in India and China (Even most of US graduates in computer science are foreigners).
We might just be in a transition period. There are new promising fields rising, and they might be the new propulsion engines. But still...
"Cheap dollar won't help US exports because US companies are mainly producing overseas."
There is something totally inverted about that sentence. Decades of economical thought might be rendered useless like a curtain at the end of a show when the lights go out.
Is the US stock market a reflection of the production overseas making us think it is the US industrial power? Has the time arrived when the Dow ends to mean what is supposed to? In a global economy, the meaning of the index of the largest American companies might stop representing the "American" locality leaving us following the wrong metrics.
Is the happiness of TARP being repaid making us think it was a good investment while the funds were generated outside US borders?
Things are changing. What used to work is not working. The characteristics of pre-emergent economies are showing up in the largest economy of all. It is like the IMF lending to Guatemala or Nicaragua to build infrastructure without hope of production or exports in spite of their depreciated currencies (The cigars did get really good. I am still looking for the Nicaraguan Hoja Cubana that disappeared. Maybe someone just had a good batch they had to get ride of at a discount). Anyways, coming back, regressing to the spontaneity of the absurd...
Time to come up with new science or science will be written of us.
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