Lunchtime Links 9-16

September 16, 2009

Me talk presidential one day (GQ, ht Felix) A former Bush speechwriter explains just how confused the White House was last fall when it was racing to release TARP.

Building code? We don’t need no stinking building code (PDF, ht Danny Watts)

Is the Fed on the side of investors? (Jack Ciesielski) No. Fed Governor Elizabeth Duke wants to give banks more leeway to use “amortized cost” accounting, i.e. to ignore fair value. But without fair value, “how else can investors assess whether or not management is dragging its feet on recognizing impaired assets? They can’t – not with straight amortized cost accounting, which demands an impairment model requiring a high-voltage cattle prod to get managers to recognize writedowns.”

Warren Buffett might have saved Lehman! If he knew how to check voice mail… (Time) Nah, he’s too smart….he wasn’t going to jump on the Lehman grenade…

Facebook says it’s “cash flow positive” (Bits) I’m curious: Over what period are they measuring? And what are the components of the revenue line? Are they cash flow positive this month? Or for the full year and going forward? It would be easy to make a claim like this in a month when they aren’t making big CAPEX investments, for instance. And what about the top line? Is the revenue all recurring? Their ad revenues can’t be that great. Last I checked, social media was not a popular ad buy with advertisers. Ad rates are pretty low relative to content sites like, for instance, NYT.com. So I have my doubts…

As banks shrink, so does the economy (Chris Whalen) “You can’t have economic growth without credit growth.” I disagree with Chris that it’s a bad idea to make banks raise more capital. He’s right that means economic pain, but that misses the point. Levering up balance sheets to manufacture artificial growth will only lead to another systemic crash. A good piece nonetheless.

Bernanke says recession is over (Bloomberg) This is just indicative of the inanity of the way we measure recessions. A big reason economists say the recession is ending is that GDP growth — and other measures of economic activity — are perking back up. But GDP growth is just a measure of spending in the economy, and one of the biggest components is government spending. It matters not what’s being purchased, or where the money is actually coming from. As long as we’re spending more, the economy is said to be “growing.” But if all the money is being borrowed? Are we really in better shape?

FDIC’s debt guarantee program, August update (FDIC) One of the biggest emergency facilities shrank in August, sort of. Financial companies are issuing less short-term paper, but they are issuing more long-term paper. Compare with this table for July. This program is schedule to end soon, though FDIC is kicking around a proposal to extend it.

Obama supports extending key Patriot Act provisions (AP)

Secretary by day, royalty by night (WaPo, ht RB)

Johnnie Walker commercial….long, but very cool….had to be shot in one take, and the actor has to have fantastic timing. If the history is all true, it’s also very interesting. (Took 40 tries)

7 comments

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Fair value still really bad idea. If investors can’t understand the balance sheet now, there’s no way they’d be able to understand a fair value sheet. The process is too complex with too many assumptions and variables for even above average investors to grasp. “Fair Value” sounds like a great concept, I’ll grant, but terrible idea for accounting presentation.Useful as a supplement schedule, but only as a comparison to standard accounting. After all, you can only use it to tell if mgmt is dragging their feet if there is something to compare it to.”how else can investors assess whether or not management is dragging its feet on recognizing impaired assets?”Without the ability to compare the two, this can’t happen either… in fact with Fair Value accounting as the sole presentation it becomes easier for mgmt to hide things because the water gets muddy with more and more variables.I still have a hard time believing that you’ve so often mocked mark to market valuations (esp lvl 2 and lvl 3), and now you WANT to use that same system to determine the liquid value of assets that are almost by nature among the most illiquid of assets short of real estate.

Posted by Andrew | Report as abusive

But Andrew….level 2 and 3 aren’t MTM. They’re mark to model and mark to myth!

Posted by Rolfe Winkler | Report as abusive

so… thanks for emphasizing my point?

Posted by Andrew | Report as abusive

Nah….my point is that we’ve learned we can’t trust banks’ marks. Agreed that the procyclicality of MTM means the market itself isn’t a perfect arbiter either, so fair value certainly isn’t perfect.To me, there’s still a glaring lack of understanding, among accountants, executives, economists, how the credit cycle inflates assets.A better solution is probably 100% reserve banking…

Posted by Rolfe Winkler | Report as abusive

I’ll trade you a bushel of wheat and a chicken hen for some new horse shoes.

Posted by Andrew | Report as abusive

…well-played sir…

Posted by Rolfe Winkler | Report as abusive

Building code? We don’t need no stinking building code (PDF, ht Danny Watts)Are you mocking the workmanship of my house?There is no home repair problem that cannot be solved with a sledge hammer. 1. Leak – 1st floor leak? Pound a hole into floor for drainage.2. Leak – 2nd floor leak? Pound a hole into floor for drainage, see 1.

Posted by fresno dan | Report as abusive