Obama - If you really want change please take the time to read & listen here!!!
How we got here!
We allowed the CEO’s, Bankers, Public Companies and Large Multinational Corporations to “beef up the books” or “cook them”. You might ask the question of how could they possibly do this? “They” created accounts receivables that were not really valid to be added in with the “real ones”, as well as laws being passed to allow for a “grey area”, plus changing how CEO’s were to get paid and compensation.
Examples are - the mortgages or Oil & Gas that were changed from a straight forward mortgage or supply product (Oil & Gas) to something like a stock, future or warrant or something like the Large Multinational Corporations, Telco’s, Cabelco’s AIG’s, Bank’s etc do by saying you owe them for something which you don’t. Say Melaleuca, DirecTV or GT Group Telecom by saying you owe them for services which you didn’t want nor order. It was better for them to have you fight it; because it would go against your credit, take hours of your time, and pay individuals to talk to you (at a cheaper rate) from another country. They will offer you a credit in how many months or it will take three months to come off of your account or something that is in the future or even give you a credit back for a portion back of what you didn’t want in the first place.
Three months is one quarter and if you decide to not pay it, then you are put in the bad debts column (we will get back to what this means further down in this article). What the ultimate goal is to do is to increase the profit no matter what for each quarter (which for you that don’t know accounting 3 months is one quarter).
Now when they looked at the corporation’s income statement it looked better than it really was. Next step we did is we said to the CEO’s and management – not only will we give you a handsome salary but based on the profit we will give you compensation, benefits etc and even exit strategies based on your “so-called” expertise, based on the profit line. Most of these CEO’s came from other corporations where they cut the quality of the product, quality of service and “beefed up the books” with creative accounting ways to make more of a profit.
Now the SEC in all there wonderful wisdom and we allowed it to happen , again: along with all of the buddies who knew what was happening and “made” the books look good gave this wonderful loophole to them.
Next problem – well we audit these companies and will create Sarbanes Oxley compliance. Well guess what - an audit only covers a certain month, only states due to the size of the corporation clients who have invoices for large $$$ amounts and only asks the question of the customer who is classified in the $$$ audit amount (usually not the little customer as that would take to much time and cost too much money)- did you receive this invoice on whatever month is randomly chosen and for the amount of the invoice? The customer’s accountant at the other end or individual only has to say – yes, I did. No question saying do you agree or disagree with it. Also, taken further, the small guy who is continually being dinged for charges in only $5 & up to say $1,000.00 (depending on what the auditor determines)–doesn’t get called.
Another reason they don’t get called; along with the small dollar amount not meeting the audit criteria; is because they are placed in the bad debt column which doesn’t warrant an audit call. Accounts Receivable still looks good as they haven’t refunded the money and anyone who does fight the amount owed & finally gets refunded amounts to very minimal.
It pays for them to do this & take your money.
Now that may seem like “slim picken’s” but let’s think about that say you have 12 million customers – charging those fees and adding on those “slim picken’s” turn out to be millions of dollars.
Guess what, again? Most people pay the fees because they get tired of fighting it and don’t want the hit against their credit rating.
That is how we got to this place and why the CEO’s feel justified in what they are doing. If you the small business guy did this, you wouldn’t have customers, you would have to close the doors for non-payment because they can physically come in and deal with you in person (instead of someone on the phone overseas), people in your town or city would complain and you would lose business and you might be thrown in jail for fraud and extortion. Have you seen anyone thrown in jail or even for that long?
Hey, what about the kid who was being sewing his oats in his teens by spamming you? He’s in jail. What about the spam mail that you receive in your regular postal service? Hey those people aren’t in jail, are they? This is only one example of a lopsided system.
Seems to be if you have lots of money and even though you stole it from your customers for rotten products that you don't want and rotten quality of service and control the market gives you a free out of jail card.
Take the time to go this site it is very refreshing note about what has happened and what we need to consider to stop these atrocities.
http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html?nclick_check=1
Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb
Published: April 7 2009 20:02 | Last updated: April 7 2009 20:02
1.What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.
2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.
5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.
6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.
8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).
10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.
Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.
In other words, a place more resistant to black swans.
The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable
Copyright The Financial Times Limited 2009
We allowed the CEO’s, Bankers, Public Companies and Large Multinational Corporations to “beef up the books” or “cook them”. You might ask the question of how could they possibly do this? “They” created accounts receivables that were not really valid to be added in with the “real ones”, as well as laws being passed to allow for a “grey area”, plus changing how CEO’s were to get paid and compensation.
Examples are - the mortgages or Oil & Gas that were changed from a straight forward mortgage or supply product (Oil & Gas) to something like a stock, future or warrant or something like the Large Multinational Corporations, Telco’s, Cabelco’s AIG’s, Bank’s etc do by saying you owe them for something which you don’t. Say Melaleuca, DirecTV or GT Group Telecom by saying you owe them for services which you didn’t want nor order. It was better for them to have you fight it; because it would go against your credit, take hours of your time, and pay individuals to talk to you (at a cheaper rate) from another country. They will offer you a credit in how many months or it will take three months to come off of your account or something that is in the future or even give you a credit back for a portion back of what you didn’t want in the first place.
Three months is one quarter and if you decide to not pay it, then you are put in the bad debts column (we will get back to what this means further down in this article). What the ultimate goal is to do is to increase the profit no matter what for each quarter (which for you that don’t know accounting 3 months is one quarter).
Now when they looked at the corporation’s income statement it looked better than it really was. Next step we did is we said to the CEO’s and management – not only will we give you a handsome salary but based on the profit we will give you compensation, benefits etc and even exit strategies based on your “so-called” expertise, based on the profit line. Most of these CEO’s came from other corporations where they cut the quality of the product, quality of service and “beefed up the books” with creative accounting ways to make more of a profit.
Now the SEC in all there wonderful wisdom and we allowed it to happen , again: along with all of the buddies who knew what was happening and “made” the books look good gave this wonderful loophole to them.
Next problem – well we audit these companies and will create Sarbanes Oxley compliance. Well guess what - an audit only covers a certain month, only states due to the size of the corporation clients who have invoices for large $$$ amounts and only asks the question of the customer who is classified in the $$$ audit amount (usually not the little customer as that would take to much time and cost too much money)- did you receive this invoice on whatever month is randomly chosen and for the amount of the invoice? The customer’s accountant at the other end or individual only has to say – yes, I did. No question saying do you agree or disagree with it. Also, taken further, the small guy who is continually being dinged for charges in only $5 & up to say $1,000.00 (depending on what the auditor determines)–doesn’t get called.
Another reason they don’t get called; along with the small dollar amount not meeting the audit criteria; is because they are placed in the bad debt column which doesn’t warrant an audit call. Accounts Receivable still looks good as they haven’t refunded the money and anyone who does fight the amount owed & finally gets refunded amounts to very minimal.
It pays for them to do this & take your money.
Now that may seem like “slim picken’s” but let’s think about that say you have 12 million customers – charging those fees and adding on those “slim picken’s” turn out to be millions of dollars.
Guess what, again? Most people pay the fees because they get tired of fighting it and don’t want the hit against their credit rating.
That is how we got to this place and why the CEO’s feel justified in what they are doing. If you the small business guy did this, you wouldn’t have customers, you would have to close the doors for non-payment because they can physically come in and deal with you in person (instead of someone on the phone overseas), people in your town or city would complain and you would lose business and you might be thrown in jail for fraud and extortion. Have you seen anyone thrown in jail or even for that long?
Hey, what about the kid who was being sewing his oats in his teens by spamming you? He’s in jail. What about the spam mail that you receive in your regular postal service? Hey those people aren’t in jail, are they? This is only one example of a lopsided system.
Seems to be if you have lots of money and even though you stole it from your customers for rotten products that you don't want and rotten quality of service and control the market gives you a free out of jail card.
Take the time to go this site it is very refreshing note about what has happened and what we need to consider to stop these atrocities.
http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html?nclick_check=1
Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb
Published: April 7 2009 20:02 | Last updated: April 7 2009 20:02
1.What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.
2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.
5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.
6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.
8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).
10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.
Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.
In other words, a place more resistant to black swans.
The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable
Copyright The Financial Times Limited 2009
Labels: aig, banks, global economy, mortgages
posted by BizGal at 12:33 PM
0 Comments:
Post a Comment
<< Home