Relevant Industry News

 

DerivActiv is pleased to provide links to articles that are relevant to hedge accounting, the world economy, U.S. economy, capital markets, and municipal market. Click through to read stories that interest you.

 

Scant Optimism in Soros Scenario

George Soros has much to say about the European debt crisis and he voices his political and economic concerns about both Europe and the U.S.  From The Huffington Post, “At Davos 2012 George Soros Says Austerity 'Will Push Europe Into A Deflationary Debt Spiral,'” by Bonnie Kavoussi, January 25, 2012.

 

 Dr. Doom Predicts Economic Gloom in 2012

Nouriel Roubini maintains his bearish outlook on, well, basically everything, as he predicts the global economy will continue to have numerous problems and no clear solutions in 2012 and beyond. His predictions, made in a speech he gave at the Bloomberg Tradebook conference held last week in New York, are scary enough to give even the most stalwart investor goose bumps. From Forbes, “Roubini on Steroids: Zombie Economy in a G-Zero World,” by Agustino Fontevecchia, January 20, 2012.

 

60 Minutes Perpetuated Whitney's Municipal Market Myths

Janet Tavakoli, President of Tavakoli Structured Finance posted an interesting article on the role 60 Minutes played in perpetuating Meredith Whitney's wild claims about unprecedented municipal bond defaults instead of focusing on the real implications of the fiscal problems faced by many states and municipalities. From The Huffington Post, "2011: The Year 60 Minutes Misled Americans About Municipal Bonds," by Janet Tavakoli, December 30, 2011. 

 

Federal Regulators Implementing Dodd-Frank are More Like Tortoises than Hares

The federal regulators tasked with implementing the Dodd-Frank financial reform act, which was signed into law a year and a half ago, have been moving slowly but inexorably forward with the issuance of proposed rules aimed at the oversight and supervision of banks. From The Washington Post, “Banks still waiting on most Dodd-Frank rules,” by Danielle Douglas, December 25, 2011.

 

Meredith Whitney’s Muni Market Predictions One Year Later

Here are two articles reminding us of Meredith Whitney’s warning one year ago of major chaos in the municipal bond market due to numerous municipal defaults. From WSJ Blog Market Beat, “Happy First Birthday, Terrible Meredith Whitney Call,” by Mark Gonfloff, December 19, 2011 and from Investment News, “Meredith Whitney was wrong — or was she?” by Evan Cooper, December 21, 2011.

 

GASB Announces Potential Changes to Financial Statement Disclosures

The Governmental Accounting Standards Board (GASB) has announced that it is considering a change to U.S. accounting rules for governmental entities by requiring them to disclose five-year projections of revenue, expenses, debt service, and pension costs. The change would give investors a more accurate depiction of state and city financial health. Fom Bloomberg, "U.S. States, Cities Face Accounting Push to Disclose Five-Year Projections," by William Selway, December 5, 2011.

 

Extent of Federal Reserve Lending During Bailout Finally Exposed

The Federal Reserve partook in clandestine lending to troubled banks during the largest bailout in U.S. history, the magnitude and extent of that lending was not revealed to lawmakers, and such knowledge might have encouraged Congress to limit the size of banks.  The largest U.S. banks have made enough since the bailout to significantly increase their total assets, increase employee pay, and increase the money spent on lobbying efforts. From Bloomberg Markets Magazine, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” by Bob Ivry, Bradley Keoun and Phil Kuntz, November 27, 2011.

 

Proposed GASB Standards Threaten Public Pensions

The Government Accounting Standards Board (GASB) is considering changing the way public pensions would value and report their pension obligations on financial statements, which would provide transparency for investors, but would also potentially magnify funding deficits. From Bloomberg Businessweek, “Pensions Resist Accounting Rules That Would Magnify Liability,” by James Nash, November 23, 2011.

 

Financial Statement Disclosures: Perplexing Instead of Transparent

The volume and complexity of the disclosure information provided in financial reports is overwhelming, and creates confusion instead of clarity to investors and financial statement preparers. From Accounting Today, “Financial Disclosure Complexity Overwhelms Investors,” By Michael Cohn, November 15, 2011.

 

Fair Value Accounting Criticized by Chris Lucas, Barclays Bank Finance Director

Fair value accounting allows banks to report profits on their debt when credit spreads are widening and the bank’s financial position may actually be deteriorating. Barclay’s Chris Lucas believes the accounting rules distort profits and make financial reporting hard to explain to investors. From CFO World, “Barclays’ FD calls for shake up in accounting rules,” November 14, 2011.

 

Accounting Rules for Financial Institutions Can Generate Misleading Numbers in Financial Statements

Complicated accounting rules make it practically impossible for investors to understand or evaluate a financial institution’s financial position. Regulators may also end up confused. From TuscaloosaNews.com, “Distortions In Baffling Financial Statements,” by Floyd Norris, November 10, 2011.

 

Valuation Errors May Have Facilitated Downfall of Subprime Lender

Cattles PLC, a troubled subprime lender in the U.K. is accusing its auditor of making valuation errors that exacerbated the lender’s financial problems. From Bloomberg, “Subprime Lender Cattles Claims “Gross Misstatement” of Bad Debt in Audit,” by Erik Larson and Kit Chellel, November 2, 2011. 

 

Black Swan Events Should be Rare, Instead Seem Everywhere

The rare, unpredictable “black swan” event described in Nassim Taleb’s bestselling book has become the new moniker for everything bad that has happened in the world lately, including the financial crisis. However the crisis was predicted, could have been prevented, and should not be excused by calling it a “black swan.” From Bloomberg Businessweek, “Many Black Swans Make the Metaphor Meaningless,” by Alice Schroeder, October 23, 2011.

 

Fair Value Gives an Earnings Boost to Banks

Fair value accounting allows financial institutions to overstate earnings and understate liabilities as credit spreads widen. From The Street, “Bank Earnings Gimmick Under Scrutiny,” by Dan Freed, October 21, 2011.

 

FASB Proposes Fair Value for Investment Properties

In an effort to develop consistent criteria with the International Accounting Standards Board, FASB issued two proposed Accounting Standards Updates. One proposes improving financial reporting and crafting consistent criteria for determining whether an entity is an investment company. The second proposes requiring entities that meet certain criteria to measure investment properties at fair value. From Journal of Accountancy, “FASB Proposes Fair Value for Investment Properties,” October 21, 2011.

 

Citigroup Posts Big Profit Due to Accounting Adjustment

The credit value adjustment, instituted by FASB’s ASC 820 accounting rule, allowed Citigroup to post a $1.9 billion gain for the third quarter despite revenues falling by $18.9 billion. From Bloomberg Businessweek, “Citigroup Beats Estimates on Accounting Gain, Credit Quality,” by Donal Griffin, October 17, 2011.

 

No Solution Yet for European Crisis 

European Union leaders and banks are struggling to find a solution acceptable to both as Greece continues its downward spiral, global markets are unpredictable, and investor confidence weakens further. From Bloomberg Businessweek, “Bankers Balk at EU Push for Higher Greek Losses, Capital,” by Frank Connelly, Peter Eichenbaum, October 17, 2011.

 

Corporations that Want to do Business in China Should Think Twice

China is a dream market for multinational businesses due to the rising incomes and buying power of its growing consumer population. However, a major drawback to entering the Chinese market is China’s requirement that foreign businesses must share their state-of-the-art technology with Chinese businesses. Access to China’s huge consumer base may be a temptation that can’t be denied, but foreign companies shouldn’t dismiss the very real likelihood that the Chinese will use foreign ingenuity to quickly produce similar products for a much lower cost. From Forbes, Why GM and Ford Should Say “No” to China, by Panos Mourdoukoutas, September 17, 2011.

 

Muni Market Worried About Obama's American Jobs Act

Municipal market participants believe that Obama’s American Jobs Act of 2011 could have significant adverse impact on the municipal bond market because it would restrict the amount of interest that wealthy investors could exclude from their income. High net worth retail buyers have become principal buyers of municipal bonds since the 2008 crisis, and issuers are worried about having to pay higher interest costs in the future to continue attracting retail buyers. From The Bond Buyer “Obama bill Would restrict Use of Tax-Exempt Interest,” September 12, 2011 and “Obama Proposal Stuns Market,” September 14, 2011, by Lynn Hume and Patrick Temple-West.

 

American Accounting Firms Support Adoption of IFRS

The SEC is considering whether or not to incorporate the International Financial Reporting Standards (IFRS) into the U.S. financial reporting system, a move that is supported by the American Institute of CPAs. Recently the AICPA suggested that the SEC should give U.S. companies the option to adopt IFRS so that more accurate financial comparisons can be made with foreign competitors. More than 100 countries have adopted or have committed to adopting IFRS. From Accounting Today, “AICPA Urges Optional Adoption of IFRS,” by Michael Cohn, August 17, 2011.

 

IASB Proposes Delaying IFRS 9 Effectiveness Date to 2015

The International Accounting Standards Board wants to delay the mandatory effectiveness date for replacing IAS 39 with IFRS 9 standards for financial instruments from January 1, 2013 to January 1, 2015. The delay is due, in part, to the new standards being completed in three phases, and IASB wanting them all to have the same effective date. However IASB did stress that entities can elect to use IFRS 9 before 2015. From Accounting Today, “IASB Wants to Push Back IFRS 9 Date by 2 Years,” by Michael Cohn August 4, 2011.

 

Government Accounting Standards Board Issues Statement 53

In June 2008, the Governmental Accounting Standards Board (GASB) issued GASB Statement 53 Accounting and Financial Reporting for Derivative Instruments. The purpose of GASB 53 is to improve how governmental entities report information about derivative instruments on their financial statements. GASB 53 sets standards that require state and local governments to measure derivatives at fair value, use specific testing criteria to evaluate the effectiveness of hedges achieved with derivative instruments, and prepare footnote disclosure on financial statements. GASB 53 Press Release.