The following is a Post by Tom Lewis who IMO is a Green Luddite but does occasionally get something right.
After reading the first paragraph be assured Jim will always tell you exactly how many beans are I the jar. It should be interesting to see how the Government tries to twist this to make you believe all is well.
“It’s on account of accountants that we can’t count anymore, and someone should hold them accountable. We call them bean counters not to disparage them — honestly, I mean no disrespect — but to remind us and them of their purpose: to tell us how many beans are in the jar. When instead they tell us how many beans were in the jar last year; or how many beans would be in the jar if we had only put more in; or exactly how many beans are in a jar we don’t have and can’t get, they are not just failing to do their job, they are doing a great deal of harm to the people and companies and system they serve.
For example: Phase Two of the collapse of the fracking oil business is going to kick in with a vengeance a few days into April, not because economic conditions in that industry will suddenly get worse on the last day of March (they could hardly get worse, as it is) but because an accounting “rule” is going to kick in.
(I put quotation marks around the word “rule” when it follows “accounting,” even though this breaks the rule against blind quotes, which are quotes not attributed to someone. But this is a special case. We all understand the Golden Rule, and the Rules of the Road, because their intent and effects are obvious. Accounting rules, not so much.)
What oil companies own, mostly, is oil that is still in the ground. They call this oil “proven reserves,” even though nothing about the oil is proven, and even though everybody lies about how much they think is down there. Since no one can prove whether they are lying about their proven reserves, and there has to be a rule, the accountants at the Securities and Exchange Commission have come up with a not-exactly-air-tight one: a formula for valuing however many barrels of oil the company claims to have in the ground. It is the average of the market price of oil on the first day of each month in the preceding year.
So: On January 1st, when a company reported its net worth, it was based on the number of barrels of oil it claimed to own times $95. On April 1st, when the same company reports, it will multiply barrels times about $50. Net worth cut in half overnight. Thank you accountants. In a world where the riverboat gamblers in the stock-market casinos can trade hundreds of thousand of shares in a nanosecond, couldn’t we come up with a real-time evaluation of oil companies. You know, with computers and all?
But wait there’s more. Another bubble about to blow is the subprime auto loan bubble, which has been pumped up by the same people doing the same things that blew up the world economy seven years ago. The accountants I have in mind here are the ones who work for the rating agencies, who look at a package of car loans, each for more than the car was worth the moment its tires touched the open road, each made to a person who is as likely to repay the loan as to discover cold fusion in the ashtray, and conclude that on average, these loans comprise a AAA investment. That rating allows the few investment companies that are still under any kind of regulation — your insurance company and your pension fund, for example — to invest in these turkeys and to say, when they flat line, “Hey, not my fault, they were rated AAA!”
So when your bank fails, your pension checks stop coming, your insurance company’s phone is no longer in service and your stock broker’s obituary says he was “unexpectedly called to be with the Lord,” and you want to know what happened, ask an accountant. And then hold him accountable.”
We’ll need these:
Great article, but what’s really amazing is, he didn’t even say the phrase “mark to market” in making his point.
“Cold fusion in the astray” gave me a good morning chuckle. Too funny