Thursday, April 2, 2009

Read the Blagojevich Indictment from US District Attorney

Blagojevich, 52, of Chicago, was charged with 16 felony counts, including racketeering conspiracy, wire fraud, extortion conspiracy, attempted extortion and making false statements to federal agents. He allegedly used his office in numerous matters involving state appointments, business, legislation and pension fund investments to seek or obtain such financial benefits as money, campaign contributions, and employment for himself and others, in exchange for official actions, including trying to leverage his authority to appoint a United States Senator, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois.

To read the entire fourteen page indictment go to: http://www.usdoj.gov/usao/iln/pr/chicago/2009/pr0402_01.pdf

The Baseline Scenario—FASB change

The Mark-to-Market Myth

Posted: 02 Apr 2009 01:19 PM PDT

Today the Financial Accounting Standards Board voted - by one vote - to relax accounting standards for certain types of securities, giving banks greater discretion in determining what price to carry them at on their balance sheets. The new rules were sought by the American Bankers Association, and not surprisingly will allow banks to increase their reported profits and strengthen their balance sheets by allowing them to increase the reported values of their toxic assets.

This makes no sense, for three reasons.

1. Investors and regulators are not idiots. They know what the accounting rules are. If banks claim they were forced to mark their assets down to “fire-sale” prices, investors can look at the facts themselves and apply any upward corrections they want. Now that banks will be able to mark their assets up to prices based solely on their own models, investors will the downward corrections they want. It’s a little like what happened when companies were forced to account for stock option compensation as expenses; nothing happened to stock prices, because anyone who wanted to could already read the footnotes and do the calculations himself.

However, the situation is not symmetrical, and the change is bad for two reasons. First, fair market value (”mark to market”) has the benefit of being a clear rule that everyone has to conform to. So from the investor’s perspective, you have one fact to go on. The new rule makes asset prices dependent on banks’ internal judgment, and each bank may apply different criteria. So from the investor’s perspective, now you have zero facts to go on. It’s as if auto companies were allowed to replace EPA fuel efficiency estimates with their own estimates using their own tests. We all know the EPA estimates are not realistic, but we can find out exactly how they were obtained and make whatever adjustments we want. If each auto company can use its own criteria, then we have no information at all.

Second, this takes away the bank’s incentive to disclose information. Under the old rule, if a bank had to show market prices but thought they were unfairly low, it would have to show some evidence in order to convince investors of its position. Under the new rule, a bank can simply report the results of its internal models and has no incentive to provide any more information.

So what we get is less information and more uncertainty. That was all reason number one.

2. Between the two options, this is the unsafe choice. Accounting in general is supposed to embody a principle of conservatism. Given plausible optimistic and pessimistic rules, you are supposed to choose the pessimistic one. But think about what happens here. Let’s say the bank has to mark to market, but it turns out the economy recovers and the asset increases in value. In this scenario, the writedown reduced the bank’s capital, so it had to get more. When the asset recovers, the bank is profitable and can buy back the shares it sold.

In the opposite scenario, the bank marks to its own imagination, but in reality the market price was the long-term price. At some point in the future, the bank will have to write down that asset, but it may not have the capital to absorb that writedown, in which case it will fail.

The choice is between the risk of raising too much capital and the risk of not raising enough capital. FASB chose the latter.

3. Mark-to-market is a red herring to begin with. Accounting rules are much more complex than “all assets must be marked to market” and “all assets can be marked to model.” There are different types of assets (Level 1, 2, and 3); different types of impairments to asset values (temporary and other-than-temporary); different accounting impacts (some writedowns on the balance sheet affect income statement profitability, some don’t); and, most importantly, different ways of holding assets. How a bank accounts for an asset depends in part on whether it says that asset is held for trading purposes, is available for sale, or will be held to maturity. Wharton has a high-level discussion of some of these issues, but if you really want to understand them you should read Sections 1.B-D of the SEC’s study of mark-to-market accounting, which I helpfully summarized for you in an earlier post.

The SEC’s conclusions were, in short:

  • Most bank assets are not marked to market to begin with, and half of the ones that are marked to market are the type that don’t affect the income statement.
  • Marking assets to market had only a very small impact on bank capital through September 2008.
  • The bank failures of 2008, including Washington Mutual, were not caused by marking assets to market (increasing loan loss provisions were a bigger culprit). In each case, stock prices started falling before the banks took writedowns, implying that investors already knew something was fishy before the accountants did anything.

I don’t know any of the back-room dealing, but it seems like the banking industry is taking advantage of the confusion to push through a change it wants, because it will make it easier for banks to massage their balance sheets and harder for investors to see what is really going on.

Update: Here’s a thought. What if the function of these rule changes is to make it easier for banks to ignore the results of the PPIP auctions? For example, Bank A puts up a pool of loans for auction, but doesn’t like the winning bid and rejects it; Bank A doesn’t want to be forced to write down its loans to the amount of the winning bid. Or, alternatively, Bank B sells a security to a buyer, and Bank A holds the same security; Bank A doesn’t want to be forced to write down the security to the price of Bank B’s transaction.

The change to fair value accounting (Rule 157) may make it easier to claim that the sale by Bank B was a “distressed sale,” meaning it can ignore it for valuation purposes. Even if it can’t ignore the sale, the change to other-than-temporary impairment may make it easier for Bank A to classify any impairment as temporary and therefore avoid an income statement hit. You’d have to be a specialist to know the answers for sure, but in any case these rule changes don’t make it any harder.

By James Kwak

Salt Rebate/Grant Passes Illinois Senate

UPDATE from Senator Burzynski:  Thank you for your email. I co-sponsored the bill, which passed from the Senate on March 26.  State Senator Brad Burzynski, 35th Dist.
1101 DeKalb Ave., Sycamore, IL 60178
(815) 895-6318; (815) 895-2905-FAX

Based upon Senator Burzynshi’s comment, I looked up SB49.  The dates of actions on the bill are below.  The SB 49 passed on March 25 and currently is in the House.  It went through a first reading in the House  and was referred to the Rules Committee on  March 25.  SB 50 had an almost identical course.

1/30/2009
Senate
Filed with Secretary by Sen. Pamela J. Althoff

1/30/2009
Senate
First Reading

  1/30/2009
Senate
Referred to Assignments

  2/3/2009
Senate
Added as Chief Co-Sponsor Sen. J. Bradley Burzynski

  2/3/2009
Senate
Added as Chief Co-Sponsor Sen. Michael Bond

  2/4/2009
Senate
Added as Chief Co-Sponsor Sen. Terry Link

  2/10/2009
Senate
Assigned to Executive

  2/10/2009
Senate
Added as Chief Co-Sponsor Sen. Susan Garrett

  2/19/2009
Senate
Added as Co-Sponsor Sen. Dan Kotowski

  2/19/2009
Senate
Held in Executive

  2/27/2009
Senate
Postponed - Executive

  3/3/2009
Senate
Senate Committee Amendment No. 1 Filed with Secretary by Sen. Pamela J. Althoff

  3/3/2009
Senate
Senate Committee Amendment No. 1 Referred to Assignments

  3/4/2009
Senate
Senate Committee Amendment No. 1 Assignments Refers to Executive

  3/6/2009
Senate
Senate Committee Amendment No. 1 Held in Executive

  3/6/2009
Senate
Held in Executive

  3/10/2009
Senate
Added as Co-Sponsor Sen. Michael Noland

  3/11/2009
Senate
Senate Committee Amendment No. 1 Adopted

  3/12/2009
Senate
Do Pass as Amended Executive; 011-000-000

  3/12/2009
Senate
Placed on Calendar Order of 2nd Reading March 17, 2009

3/24/2009
Senate
Second Reading

  3/24/2009
Senate
Placed on Calendar Order of 3rd Reading March 25, 2009

  3/25/2009
Senate
Added as Co-Sponsor Sen. John J. Millner

  3/25/2009
Senate
Added as Co-Sponsor Sen. Mike Jacobs

3/25/2009
Senate
Third Reading - Passed; 058-000-001

  3/25/2009
House
Arrived in House

  3/25/2009
House
Placed on Calendar Order of First Reading

  3/25/2009
House
Chief House Sponsor Rep. Kathleen A. Ryg

  3/25/2009
House
Added Alternate Chief Co-Sponsor Rep. Sidney H. Mathias

3/25/2009
House
First Reading

3/25/2009
House
Referred to Rules Committee

Click on the following if you wish to read the original article in the Northwest Herald:  Northwest Herald | Bills eye road salt relief

Scaled-back statewide construction plan gaining momentum | Clout Street - local political coverage

 

Senate Minority Leader Christine Radogno (R-Lemont) praised the legislation because the decisions on what projects would be funded were based on engineering analysis rather than political clout

Click on the following to read more:

Scaled-back statewide construction plan gaining momentum | Clout Street - local political coverage

The Granddaddy State - Economix Blog - NYTimes.com

 

Economist often debate on where the debt/G.D.P. ratio has been and where it will go.  In 1946, right after the end of World War II, debt held by the public represented 109 percent of G.D.P. The president’s proposed budget features investments in health, education and environmental sustainability that promise important future benefits.

Sad thing about this article is that it does not speak of the debt/GDP numbers of now and at end of five years of Recovery Program.  I guess we should remember these numbers.  Well from what I remember just over 100% in five years.  What do you remember?

The Granddaddy State - Economix Blog - NYTimes.com

China Vies to Be Leader in Electric Vehicles - NYTimes.com

China wants to raise its annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011.  In 2011 Japan and South Korea together will be producing 1.1 million hybrid or all-electric light vehicles by then and North America will be making 267,000

China is making a virtue of a liability. It is behind the United States, Japan and other countries when it comes to making gas-powered vehicles, but by skipping the current technology, China hopes to get a jump on the next.

Read the rest of the story: China Vies to Be Leader in Electric Vehicles - NYTimes.com

Rockford Tea Party scheduled for April 14

Interesting.   Click on following to read the rest of the story:

The Belvidere Daily Republican. - Rockford Tea Party scheduled for April 14

Fisher nut distributor recalls pistachios :: The Courier News :: Local News

 

The Fisher Nuts Outlet Store in Elgin is shown Wednesday. Local stores pulled more packages of pistachios off their shelves this week as Elgin-based John B. Sanfilippo & Son Inc. announced it was participating in a voluntary recall as a precautionary measure against salmonella.
(Michael Smart/Staff Photographer)

Click on the following to read the rest of the story:

Fisher nut distributor recalls pistachios :: The Courier News :: Local News

US car sales plunge in March | csmonitor.com

 

General Motors sales were down 45 percent, compared with the same month a year ago. Ford slid 41 percent, while Chrysler was down 38 percent

US car sales plunge in March | csmonitor.com

Government may reward car buyers who scrap gas guzzlers

Actual bills are being proposed by the Congress, similar to those in effect in Europe.

Click on the following to view the story

Government may reward car buyers -- chicagotribune.com

New Accounting Guidelines for Mortgage-Backed Securities - NYTimes.com

 

The decision will allow the assets to be valued at what they would go for in an “orderly” sale, as opposed to a forced or distressed sale

Click on the following to read the rest of the story:

New Accounting Guidelines for Mortgage-Backed Securities - NYTimes.com

The Financial Accounting Standards Accounting Board was not unanimous in their decision. Additionally this may not help some of the TARP and Recovery Program. Read the Chicago Tribune for a discussion of these matters: http://www.chicagotribune.com/business/sns-ap-meltdown-accounting-rule,0,3667102.story

Local Governments spend $6 million on lobbying other governmental units

Recently The Illinois Campaign for Political Reform (325 West Huron, Suite 500, Chicago, Illinois 60654, (312) 335-1767, Fax (312) 335-1067,www.campaign.org) released an interesting  report that found that 110 Local Governments and Public Agencies spent over $6million in lobbying activities.  No Boone County government units were noted however nearly all of our neighboring county governments, larger cities and Northern Illinois University were cited for lobbying expenditures.  To read the report, go to:  http://www.ilcampaign.org/PDF/LGL2009-POST.pdf

Cal Skinner from www.mchenrycountyblog.com/ has extracted the following schools and cities from McHenry County that spent precious tax dollars on lobbying our state government.

Carpentersville School District 300
2006-07 $28,347 (Hinshaw & Culbertson)
Elgin Community College
2006-07 $47,500 (Advanced Practical Solutions)
2007-08 $60,000 (Advanced Practical Solutions)
Harper College
2006-07 $84,000 (Advanced Practical Solutions)
2007-08 $126,000 (Advanced Practical Solutions - $60,000; Alfred G. Ronan Ltd - $50,000; Michelle Teresa Olson - $6,000; Zack Stamp Ltd - $10,000)
Huntley
2006-07 $45,000 (Morreale Public Affairs Group)
2007-08 $65,507 (Morreale Public Affairs Group)
Johnsburg
2006-07 N.A. (Advanced Practical Solutions)
2007-08 $35,000 (Advanced Practical Solutions)

I  believe that citizens in Boone County should attempt to monitor any  government lobbying expenditures by our local government units .  With the  downturn in our county’s economy it is very conceivable that Boone County will receive large “stimulus” program from the state.  Such programs may or may not require lobbying, either way citizens should be informed of the lobbying.    And who are these lobbying firms?  Here is a partial list from the study which Mr. Skinner provides:

Advanced Practical Solutions
Milan Petrovic, Shqipe "Sheri" Osmani, and Matthew R. Pickering were the exclusive lobbyists; the firm also reported contractual relationships with All-Circo, Government Navigation Group, Roger Marquardt, and two other firms. The firm also reported Dan Shomon, Fidelity Consulting Group, Illinois Governmental Consulting Group, and Roger Marquardt, as clients.
Morreale Public Affairs Group
Kim Morreale was the exclusive lobbyist.
Olson, Michelle Teresa
Michelle Teresa Olson is the exclusive lobbyist. The firm also listed Cullen & Assoc as a client.
Ronan, Alfred G., Ltd.
Alfred G. Ronan and Cheryl Axley were the exclusive lobbyists. The firm listed Miguel Santiago and Thomas J. Walsh as clients
Stamp, Zack LTD
Zack Stamp, Kevin McFadden and Steve W. Kinion were the exclusive lobbyists. The firm also reported contractual relationships with B-P Consultants, Cullen & Assoc., Zack Stamp Consulting, and one other.

G20 to bulk up IMF in response to crisis | Reuters

Leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up International Monetary Fund.

France and Germany led demands for a crackdown on tax havens they blame for allowing the wealthy to avoid paying their fair share at a time of growing economic hardship.

Click on the Headline above to read the rest of the story.

 

Local Auto Parts Manufacturers Close Doors

Two local auto parts suppliers, Android Industries ABA of America,  are closing their doors.  Both stories are from the Rockford Register Star.

Android 2

Antoid 1

Android 2

Salaries dominate candidate’s forum :: The Courier News :: Local News

Is another township/county also capable of overpaying township officials?  Is this a repeat of a story regarding Belvidere Township? 

Click on the following to read the rest of the story:

Salaries dominate candidate’s forum :: The Courier News :: Local News

Business Journal | ECC expects big crowd 
for annual job fair today

A larger job fair is anticipated. 

ECC’s job fair is free and open to the public from 3 to 7 p.m. today [April 2]  at the Spartan Events Center, 1700 Spartan Drive in Elgin.

Click on the following to see the rest of the story:

Business Journal | ECC expects big crowd for annual job fair today

Northwest Herald | Deadline near, indictment imminent for Blagojevich

“We’re just hours away from a massive pay-to-play indictment against Gov. Blagojevich and possibly others,” former federal prosecutor Patrick M. Collins, who sent Gov. George Ryan to prison for racketeering, told a press conference Tuesday.

200901271006330.blagovich-270109.jpg

Click on the following for the rest of the story:

Northwest Herald | Deadline near, indictment imminent for Blagojevich

Northwest Herald | New tax to fuel roadwork

So—Boone County train enthusiasts it will be another 3/4 cent sales tax at a minimium for our county to join the METRA system plus whatever local costs for stations and track improvements charges. And that is all assuming that METRA wants “us”.

Please note how “Stimulus Money” was divided in McHenry County.  I have yet to hear if our county/cities are receiving any road funds;  I just heard what IDOT has planned in Boone County.

The General Assembly doubled the sales tax that collar counties pay to subsidize the Regional Transportation Authority to half a percent last year. Sensing the unpopularity of the idea, legislators added an additional quarter-percent sales tax that each county government could spend on its own transportation and public safety needs.

To read the rest of the story, click on the following:

Northwest Herald | New tax to fuel roadwork