Stocks down 400

[Bob Campbell]

Wow. Barney Franks shot down Bill Clinton's attempt to fix something. And he did this in a Republican controlled Congress too. Damn, Franks is the man who should be President.

Gotta go read the paper and see what President Hoover says about yesterday's summit.

And I have to go and look up how Clinton destroyed the economy. My memories of 92-2000 must be off. Wonder if I'll have to give back all the money I made in the stock market then.

[cgarison]

Back in 1994 (when I was studying accounting in college) the Financial Accounting and Standards Board issued a rule that stated that all investment securities held as assets by a company had to restated every year to reflect their current value on the open market. Companies cheered this rule in 1994 because they were not allowed to restate the value of securities higher than the amount they acquired them in open market operations despite the fact that the soaring stock market had tripled their value.

Most CEO's and COO's saw this as a way to increase the value of assets on a balance sheet and make the company worth more to investors. Accountants liked this because through conservatism, assets that lost value on open markets could be written down.

Now with that gone, assets on balance sheets will be marked at their acquired value. This also means that it will be much slower for the DOW to increase like it did in the years since 1994 because finance people cannot write up the value of assets on a balance sheet making a company look "more valuable." But this will end headlines like GM lost $52 Billion dollars in the last year because these paper losses will be a thing of the past.

Like I said, it is now officially a brave new world. No more Enrons. No more WaMus and Lehmans. Although, we still can have Worldcoms, Adelphia, and Global Crossings because those cases of comprised of mainly fraud and not market sector collapses that trigger corporate failure. Or should I say it is a brave "old" world.

[genlock]

What was the accounting rule before the accounting board changed in 1994?
Was it sort of like the new rule today?
Did the 1994 change lead to the incredible boom in the stock market from 1994 to last week?
Was the country's financial system living on borrowed time since 1994?

Thank you for putting the rule change in some sort of language understandable by me.
The slow typing helped a lot.

[Lester]

"I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress, or by me when I was President, to put some standards and tighten up a little on Fannie Mae and Freddie Mac." - William Jefferson Clinton, 42nd President of the United States.

...President Hoover...

Why do you keep saying Hoover? Your new VP says it was Roosevelt!

[Hoosier Daddy]

The Barracuda can see Russia from her house!

[cgarison]

What was the accounting rule before the accounting board changed in 1994?
Was it sort of like the new rule today?

The rule rule today is very similar to the rule prior to the change in 1994. The security asset will be booked at the value that it was acquired and not be revalued to match the market price. When the security is sold, then the gains or losses will be booked at that time, but the asset will not be revalued up or down to match market value.

The biggest question is do the companies restate the value of their securities back to where they were originally acquired or do they leave them in this depressed state until they are sold at a higher value and then a gain is recognized. I think the second option is better, but the first option would free up credit more quickly even though companies will be borrowing against impaired or bad assets.

Did the 1994 change lead to the incredible boom in the stock market from 1994 to last week?
Was the country's financial system living on borrowed time since 1994?

It may not have been directly related, but it sure had an impact to drive stock values higher. As investments held by a company increased in value, so did assets section of the balance sheet. The more assets held by a company, then the more money they can borrow. The more money that can be borrowed, the fast they can increase output or invest in capital that can generate greater sales which leads higher stock prices. Yes, this is related, but not a direct 1:1 relationship.

And no, the accountants that proposed this rule did not see this creating and adverse system that would seem like living on borrowed time because I was taught this as being good because it would keep assets from being overstated. So this means that balance sheets would always be conservatively stated from accounting terms. The issues grew in the late 90's during the dot com boom when venture capitalists learned to game the system. After 9-11 and the Enron collapse, FASB and congress should have looked into seriously repealing this rule as it nearly devastated all the energy industries in the US. And you can see where this led us when banks and investors once again gamed the system.

Thank you for putting the rule change in some sort of language understandable by me.
The slow typing helped a lot.

Any time. I am a pretty slow typist most of the time.

[Bob Campbell]

Has that rule ( I think they call it the "Fair Value" rule) changed in the last week? I hadn't heard that, though I did hear some CNBC heads wishing it would be.

[cgarison]

Has that rule ( I think they call it the "Fair Value" rule) changed in the last week? I hadn't heard that, though I did hear some CNBC heads wishing it would be.

"Mark to Market" rules that were enacted in 1994 were repealed effective 10/11/2008.

It made my news alerts on Friday, but it was not a huge headline.

[genlock]

Dow up 963.
Young broadcasting down 20% to 4 cents a share.

[cgarison]

Dow up 963.

I knew their was going to be a bounce, but this is insane.

[Jet Black]

Jeepy, I saw Steve Forbes on FBN last night, and he was acting like Mark to Market was still in force, and should be repealed. Is it repealed or not, I wonder?

[cgarison]

Steve Forbes actually is the only source that has reported this correctly. (Why in the hell is he not the head of the SEC???) FASB 157 has been restated to ease Mark to Market to actually reflect mark to fair market value (FMV) with FASB 157-3 released October 10th.

So yes, Mark to Market is technically gone by being replaced by the new Mark to Fair Market Value. And that is still slightly different from the pre-1994 rules that existed because mark ups were usually frowned upon because it was not a conservative accounting approach while marking the value of the assets was accepted because acountants like all things conservative. The part so the key is how do we determine what is fair market value in this time of declining markets.

Also, a clause in the $700 billion dollar bailout allows the SEC to not just amend FASB 157, but they also have the power to throw it out.

Finally, this legislation has nothing to do with Sarbanes-Oxley as reported by many news sources and bloggers.

Thanks JB for making me take a closer look at this law. My brain has been on other issues at the time in the office other than auditing, FASB, and GAAP at this time.

[Jet Black]

As a news-watching goon and no more, I don't know how much I really trust Steve Forbes' opinion. I've heard him say things that I thought were a little iffy. Some say he's not a patch on his old man, and I'm inclined to believe it. I've heard it said that MF would roll over in his grave, had he heard things that SF has said.

That said, thanks for the info. An inofrmed voter is a good voter. (Can I bring my pitchfork inside my polling place?)

[cgarison]

Like I said, my brain has been on other issues than worrying too much about the economy except in place where it affected my job with accounting rule changes which were presented in new fuzzy math style on last Friday. (A sign of the times that my generation is coming of age/power which scares the hell out of me.) As you have seen, I could care less about the partison mudslinging in this thread although I am bothered by the fact that a large group of uninformed American think accountants control the purse strings of companies and government. With that said, the Dow is down but it will recover. This will be a u-shape trough and not a sharp quick v-bottom as we all wished for 3 months ago. Retail is down, but it will recover because people have to buy stuff to survive. The automakers are down and the government will bail them out. The banks are down and the government is socializing them. Same goes for insurance companies that have become subsidiaries of the Fed.

As for me. Looks like I will be spending a few weeks (not quite a full month) in north Jersey, again. Training this time. But I guess that is better than going out and finding a job. It feels really good to know that a company cares enough to hide you in a corner of the building until the storm passes. I hope a team member fares as well in the next few weeks as the winds of change pick up and tasks get re-arranged. So, new systems to learn and new people to get know. New people to mentor and those people will be new mentors to me. Damn. This is confusing.

Of course, I just broke open the rotten egg of a project on the manager in another department that stole it from me at the beginning of the year due to the fact that senior management thought I was being too tough on the group that I had rolled out the software a year ago. Surprise! Re-implementation is a total bi+ch! I am abandoning a group that had 8 months of hand holding to get them to the point where 4 people have been replaced with a program I wrote. My soon to be former team mates will have to perform all those horrible weekly tasks I used to have to perform each week without much of a groan. Fresh blood has been selected to assist in managing our internal web sites. New victims are being drafted to teach courses on Excel, Word, PowerPoint, data warehousing techniques, ERP usage, reporting, and other stuff as I pass the baton to the new group of teachers to become strictly an advisor. And my boss that been my best friend, advisor, and overall cool head of reason in times of upset and fury for the last two years will be my boss no more as of Friday at 5:00 pm. Although, I am certain we will be participating on many projects to come. At least she was there with lots of other friends and co-workers from my past 10 years of AIS work when I partied like a pop star at the Tao Night Club on St Patrick's Day in Vegas. Damn. It must have been a hell of a year to think back and tears of joy!

Crap. Today was good, bad, and ugly all wrapped up in one.

Onward and Upward. Stocks will drift again in the unsettled sea of the financial crisis. Oil will struggle to move up on rumors that the consumer is not spending or traveling in their cars. 2 guys are fighting it out to to win the biggest job in America. And almost every company had a better day than Apple Inc.

[Dr. Whiplash]

I don't know s--- about finance and stocks but this reads like a smart, balanced news perspective...

"How did the world's markets come to the brink of collapse? Some say regulators failed. Others claim deregulation left them handcuffed. Who's right? Both are. This is the story of how Washington didn't catch up to Wall Street."

http://www.washingtonpost.com/wp-dyn/co ... id=topnews

[cgarison]

It was just a couple weeks ago when were watching a 1000 point swing in a single day.

At 7:00 am, all circuit breakers were popped in premarket trading. We are as down as we can get and it is not 9:30am which allows for more down.

Hang on to your knickers. This is going to be a wild ride.

[genlock]

At some point there will be some massive bargains in the stock market.
This may not be the day.

[genlock]

Dow dropping a hundred points a minute.

[cgarison]

When I hired into HEX two years ago, the stock was hovering around $15.00/share. Leadership in the summer of 2007 bought lots of treasury stock from the open market to shore up the price of the stock. Yesterday, the stock bounced off $1.15/share and is trading around a buck seventeen today.

Can you say "undervalued?" C'mon, give it a try.

[Bob Campbell]

What is HEX? What's the stock symbol?