Accounting Procedures

Washington is again Talking past each other, and it is just as well. Judges do not need to get involved in writing Mortgage terms, the federal government does not need to own troubled Mortgages–it has a troublesome one of it’s own, $4 billion to rehabilitate abandoned Housing is a simple giveaway to construction companies, and it is only Job-seeking that drives any need for Mortgage counseling; understand that Mortgage lenders will only change Mortgage language to regain the confusion they desire. The Republican position may be equally as stupid, as We need those higher Mortgage interest rates and larger Down payments in order to prevent future crisis in the Mortgage industry. The most important Republican item, making the Tax Cuts permanent, only ensures default on the greatest Mortgage of all–the federal debt!

We can find excellent examples of primetime Accounting, where Investors find bad business decisions only after they have reached the state of Bankruptcy. One can ask what is the basic problem with this Accounting. Executives–and not just in the Banking industry–take high Risks to generate high Profits, all in order to obtain huge bonuses and Pay packages; they being little concerned with the Risk level of these investments, as they estimate a high Percentage of the investments will work out. The trouble comes in the fact that there is a vast difference in the performance factor of these Investments because of the state of the Economy; they are almost always paid in a growing economy, and have major default rates during Recession or no-Growth economic conditions. Regulation will never divorce this Policy-making from the Corporate structure, because of Executive thirst for Cash. I would suggest a law, though, which would insist on Executive firing (termination of employment by the Corporate entity) if off-the-Balance-Sheets losses exceed 25 times the Executive’s Pay Packages yearly, and where all Executive must sign for all the off-the-Record business investments.

Evan Dooley identifies the problem described above. Dooley could see supposed market advantage with which he could make extreme Profits, but he did not possess the financial potential to exploit the Profit-making potential. He simply did what he had likely been doing for years, entering bids which he could not cover without a Market gain, thereby making a personal Gain as the market paid him off; an easy way enjoyed by many such Traders to triple or quadruple their Incomes. The trouble only arises when the market in the Commodity tops out. Evan Dooley tried to ride the wheat market for too long with too high a commitment. He got caught short. The Reader should understand all Executive types try to make a successful career from risking other peoples’ money. Accounting practice is utilized to make sure these Risk-Takers employ only viable Risk options, but they are naturally Plungers in search of vast wealth for themselves. The Result is predictable without rigid Rules of Accounting compliance. lgl