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 Merrill economist prediciting a FEB intermeeting rate cut View next topic
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JimODonnell
Dud?


Joined: 07 Feb 2008
Posts: 11
Location: Cullman AL 35055 USA

Get A Grip On Things
PostPosted: Thu Feb 07, 2008 11:46 am Reply with quoteBack to top

There are in excess of $450 trillion in various deravitives floating all around the world and they are "owned" by all kinds of instititions and investors.

Are they all worthless? No, but a large % of them are. If just 20% are worthless that's $90 trillion which is many times the total GNP of the entire planet.

You are only hearing about level 3 assets of financial institutions now which must "value" them somewhere around market value. This is only partially true as many are still hiding them inside or off their balance sheet.

Consider, for example, the "assets" of the trust funds of college endowments, like Harvard. They don't have to value these at market but carry them at cost. The poo poo will hit the fan when they need the actual cash and have to sell them.

This is but one example of hundreds of such holders.

To put it bluntly, the world is bankrupt and the traditional method of resolving this proplem is by enormous monitary inflation which is arleady in progress.

They don't call him "Helicopter" Ben Bernanke for nothing.

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JimODonnell
Dud?


Joined: 07 Feb 2008
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Location: Cullman AL 35055 USA

Regarding "Financial" Media Reports
PostPosted: Thu Feb 07, 2008 12:07 pm Reply with quoteBack to top

Their job is to confuse and distort. Remember that CNBC finally admitted that there was a bear market in 2002 after the NASDAQ had already fallen over 70% from the highs.

Thank you Sherlock.

Regarding Cramer et al. They know nothing other than keeping their jobs on TV. A friend of mine use to refer to CNBC as "The Bull Channel" which was being very kind.

Some of you may recall that Cramer was BANNED from CNBC back around 2001 because they said the he was "front-running" stories he was reporting on TV. What happend CNBC? How did he become a celebrity recently. Guess he is telling all the lies that are required of him. Ditto for Larry Kudlow and many others on the channel.

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bdc63
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Re: Regarding "Financial" Media Reports
PostPosted: Thu Feb 07, 2008 12:41 pm Reply with quoteBack to top

JimODonnell wrote:
Their job is to confuse and distort.


You just described all of the MSM. I don't take anything at face value that I hear on TV, read in the newspaper, or hear from a politicians lips.
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JimODonnell
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Posts: 11
Location: Cullman AL 35055 USA

Re: Regarding "Financial" Media Reports
PostPosted: Thu Feb 07, 2008 12:51 pm Reply with quoteBack to top

bdc63 wrote:
JimODonnell wrote:
Their job is to confuse and distort.


You just described all of the MSM. I don't take anything at face value that I hear on TV, read in the newspaper, or hear from a politicians lips.


Actually most of the MSM [I hate that term as they are not mainstream.] is very usefull to learn the truth.

If something appears on CNBC or FOX there is about a 90% probabliity that the EXACT OPPOSITE is true. This can serve as a good first filter for getting at the truth.

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Jim ODonnell
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Rotag
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Re: Merrill economist prediciting a FEB intermeeting rate cut
PostPosted: Thu Feb 07, 2008 12:55 pm Reply with quoteBack to top

Can someone succinctly explain the logic of OFF balance sheet accounting?


Edit:

SPVs are used in a variety of transactions, including securitizations, project finance, and leasing. An SPV can take various legal forms, including corporations, US-style trusts or partnerships.

Off-balance sheet financing is attractive from a risk management standpoint. When assets and liabilities are moved from one balance sheet to another, the risks associated with those assets and liabilities go with them. For example, if a firm transfers credit risky assets to an SPV, the credit risk goes with those assets.

Off-balance sheet financing also affords considerable flexibility in financing. An SPV doesn't utilize the sponsoring firm's credit lines or other financing channels. It is presented to financiers as a stand-alone entity with its own risk-reward characteristics. It can issue its own debt or establish its own lines of credit. Often, a sponsoring firm overcapitalizes an SPV or supplies it with credit enhancement. In this circumstance, the SPV may have a higher credit rating than the sponsoring firm, and it will achieve a lower cost of funding. A BBB-rated firm can achieve AAA-rated financing costs if it arranges that financing through a sufficiently capitalized SPV.

Off-balance sheet financing is often employed as a means of asset-liability management. Obviously, if assets and liabilities are never placed on the balance sheet, they don't have to be matched! They do need to be matched on the SPV's balance sheet, but the SPV can be structured in a way that facilitates this. A pass-through is a security issued by a special purpose vehicle. The SPV holds assets and pays the pass-through's investors whatever net cash flows those assets generate. In this way, the SPV's assets and liabilities are automatically cash matched, so there is no asset-liability risk. Many securitizations are structured as pass-throughs. See, for example, the discussion of mortgage pass-throughs.


Off-balance sheet financing has other applications. SPVs can be used in tax avoidance. Banks use off-balance sheet financing to achieve reductions in their regulatory capital requirements. This is a compelling reason for many securitizations. It is also the purpose of trust preferred securities.

While SPVs and off-balance sheet financing have many legitimate purposes, they can also be used to misrepresent a firm's financial condition. Prior to its bankruptcy, Enron created numerous SPVs and used them to hide billions of dollars in debt. That abuse, as well as other scandals during 2001-2002, prompted a reexamination of SPVs. Laws, regulations and accounting rules were tightened as a result.

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JimODonnell
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Re: Merrill economist prediciting a FEB intermeeting rate cut
PostPosted: Thu Feb 07, 2008 4:27 pm Reply with quoteBack to top

Rotag wrote:
Can someone succinctly explain the logic of OFF balance sheet accounting?




This is difficult as the methods of doing this are as limitless as the human imagination. It is almost always used to hide things from someone, like government, regulators, your own accountants, you own board of directors and especially your stockholders.

You should revisit the Enron case as they used these methods in very creative ways [new ones that I had never heard of before]. They used subisdiary companies, limited partnerships that were not really limited, offshore companies, the balance sheets of companies that they did business with elsewhere, they even hired their own bankers who then parked stuff on their books. As you can see this can be endless.

I am very familiar with the "old" requirements of broker-dalers as I use to be a Stock Exchange Examiner. There is an SEC requirement called the "Net Capital Rule" [15c3-1]. It sought to maintain a liquid capital for the firm so that thoretically any broker could be liquidated immediately at any time.

In essence it "was" like this. Take a firms net worth and subtract all non-liquid assets like F & F, real estate, buildings, etc. and then reduce the remaining value of the "semi-liquid" assets by a predetermined "haircut." These haircuts were complicated but depended upon the relative marketibility of the assets, e.g., T-Bills has a 0% haircut, exchange listed stocks were 15%, OTC stocks which had no ready market were 100%.

This stuff with Merrill Lynch "finding" writeoffs of $14 billion dollars would have been impossible back in the 1960-1980's which is the last time I am familiar with regarding these requirements. These bonds and or derivatives would have been already valued at ZERO as they had no ready market.

Obviously things changed, a lot, in the past few decades. Now they refer to level 1-3 assets and somehow some of these things get carried based upon computer valuations and not market value as they have no market value.

I leave you with some information from someone who you will recognize:

"Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: we view them as time bombs, both for the parties that deal in them and the economic system." "The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear""In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." Warren Buffet, February 21, 2003

He was dealing with only about $5 billion of derivatives on the books of an insurance company [General Re] which he acquired. Charlie is his chief financial officer.

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Jim ODonnell
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Rotag
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Re: Merrill economist prediciting a FEB intermeeting rate cut
PostPosted: Thu Feb 07, 2008 4:39 pm Reply with quoteBack to top

Jim,

Thanks for the reply.


I should have known about this except, as I said I am not an accountant. I am usually one for more words, however, all I can say is it seems like BS.

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JimODonnell
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Location: Cullman AL 35055 USA

Re: Merrill economist prediciting a FEB intermeeting rate cut
PostPosted: Thu Feb 07, 2008 4:59 pm Reply with quoteBack to top

Rotag wrote:
Jim,

Thanks for the reply.


I should have known about this except, as I said I am not an accountant. I am usually one for more words, however, all I can say is it seems like BS.


I am not a schooled accountant either but studied physics. Accounting was something that I learned to advance my choosen profession. It is BS but now we live in a society which dines on BS and loves it. Thirty years ago not of this could have happened this easily.

But then again, there also would have been no Paris Hilton or Brittany Spears. Also two back-to-back idiots like Bill Clinton and George W Bush would also have been impossible.

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Jim ODonnell
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Rotag
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Re: Merrill economist prediciting a FEB intermeeting rate cut
PostPosted: Thu Feb 07, 2008 5:21 pm Reply with quoteBack to top

I called my friend who is a tax accountant. He basically said when he learned about it he had the same basic questions we do. Shifting liability to a ficticious company didn't take the liability away and he mentioned Enron as well.

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sless
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Re: Merrill economist prediciting a FEB intermeeting rate cut
PostPosted: Thu Feb 07, 2008 7:36 pm Reply with quoteBack to top

speaking of Enron.... I always thought this was so ironic.


From a 1998 cornell student research paper
As shown in Table 2, the 8-variable Beneish model shows that that Enron may be manipulating its earnings. We get
a M-score of -1.89 for Enron, which is greater than the standard M-score of -2.22 used to gauge the likelihood of
manipulation. The most significant factor contributing to the M-score manipulation statistic is the SGI. After close
examination we were not concerned by the fact they were growing too fast because the sales increase comes from
the recent acquisition of PGE. Additionally, the GMI shows deteriorating margins, the AQI shows increasing
amounts of ‘soft’ assets, DEPI shows depreciation expense slowing down, and LVGI indicate rapidly increasing
leverage. However, further examination of these indicators showed no cause for concern.


http://www.johnson.cornell.edu.....ng/ene.pdf Page-15

Moral of the story- "the crucial moment for intuitive traders is the one in which they compel themselves to disbelieve their own clever model" or as my history teacher aways said, never research with a thesis in mind for all you will do is find evidence only to support your position. Smile
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