Comments on: Still Not Getting It http://lolfed.com/2009/04/23/still-not-getting-it/ Financial Humor, Political Jokes and LOLCats Sat, 28 Jan 2012 21:03:33 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Greghttp://lolfed.com/2009/04/23/still-not-getting-it/#comment-3155 Greg Fri, 24 Apr 2009 01:29:25 +0000 http://lolfed.com/?p=3714#comment-3155 Alyx, thanks that site was super helpful. I too have been struggling to understand how this accounting works. It is truly preposterous... Alyx, thanks that site was super helpful. I too have been struggling to understand how this accounting works. It is truly preposterous…

]]> By: Mr.Sparklehttp://lolfed.com/2009/04/23/still-not-getting-it/#comment-3154 Mr.Sparkle Thu, 23 Apr 2009 16:59:16 +0000 http://lolfed.com/?p=3714#comment-3154 That was a pretty good link alyx. What I would also be interested to find out is the relative values on each of the companies books in real life. The example of GS buying C debt is a nicely illustrative hypothetical. But what of this scenario? Entity #1 holds $1M par of C 10 years. C has sold $1M par. C fails, fails, and fails some more and pretty soon the debt is trading at 0.70/$1. C realizes a magic profit of 0.30/$1. But... in real life what is Entity #1 booking at? Par? 0.85/$1? If the rules regarding how to mark an asset vs a liability are so vastly different, I'd say there is a serious problem. It seems impossible to me (I don't even play an accountant on TV) to reconcile how one company might be carrying this debt at par and the issuing entity realizing a 30% profit becuase the value fell. Any accountants out there that can clue me in and help reconcile this? That was a pretty good link alyx.

What I would also be interested to find out is the relative values on each of the companies books in real life. The example of GS buying C debt is a nicely illustrative hypothetical. But what of this scenario?

Entity #1 holds $1M par of C 10 years.
C has sold $1M par.
C fails, fails, and fails some more and pretty soon the debt is trading at 0.70/$1.

C realizes a magic profit of 0.30/$1. But… in real life what is Entity #1 booking at? Par? 0.85/$1? If the rules regarding how to mark an asset vs a liability are so vastly different, I’d say there is a serious problem. It seems impossible to me (I don’t even play an accountant on TV) to reconcile how one company might be carrying this debt at par and the issuing entity realizing a 30% profit becuase the value fell.

Any accountants out there that can clue me in and help reconcile this?

]]> By: bbhttp://lolfed.com/2009/04/23/still-not-getting-it/#comment-3153 bb Thu, 23 Apr 2009 16:15:31 +0000 http://lolfed.com/?p=3714#comment-3153 Jason, not sure if it was you who made the perfect comparison to this CVA nonsense: it is identical to an owner of a mortgaged home to report higher income just becuase the value of his home (the collateral) has plummeted, all the while his loan dues do not change substantially. in reality, C is still on the hook for the face value of its bonds. just because the cds is pricing high default risk, it does not mean the company can call its issues at anything but market price. it has a contractual obligation to pay the face value at a call. they can buy some bonds at market prices, but this does not mean the whole issue has to be marked to market (another nonsense). no intelligible bond holder will sell to the issuer his bonds at market price which is inferior to the call price of the issue. there are quite a few things wrong with the accounting standards and banks seem positioned best to exploit them. Jason,
not sure if it was you who made the perfect comparison to this CVA nonsense: it is identical to an owner of a mortgaged home to report higher income just becuase the value of his home (the collateral) has plummeted, all the while his loan dues do not change substantially.
in reality, C is still on the hook for the face value of its bonds. just because the cds is pricing high default risk, it does not mean the company can call its issues at anything but market price. it has a contractual obligation to pay the face value at a call. they can buy some bonds at market prices, but this does not mean the whole issue has to be marked to market (another nonsense). no intelligible bond holder will sell to the issuer his bonds at market price which is inferior to the call price of the issue.
there are quite a few things wrong with the accounting standards and banks seem positioned best to exploit them.

]]> By: Tonyhttp://lolfed.com/2009/04/23/still-not-getting-it/#comment-3152 Tony Thu, 23 Apr 2009 15:58:53 +0000 http://lolfed.com/?p=3714#comment-3152 And true to American form, there will be much sound and fury over this, signifying nothing. The laws governing this garbage were paid for by the people they benefit, using money from the last time they did something crazy with laws to benefit themselves. I'm wondering if maybe once a year we could get everyone in America to chip in $2 and we could buy one law ourselves... or better yet, pick one of their new laws to veto. And true to American form, there will be much sound and fury over this, signifying nothing. The laws governing this garbage were paid for by the people they benefit, using money from the last time they did something crazy with laws to benefit themselves. I’m wondering if maybe once a year we could get everyone in America to chip in $2 and we could buy one law ourselves… or better yet, pick one of their new laws to veto.

]]> By: Jasonhttp://lolfed.com/2009/04/23/still-not-getting-it/#comment-3151 Jason Thu, 23 Apr 2009 15:39:40 +0000 http://lolfed.com/?p=3714#comment-3151 Fuck Reagan, this is the real voodoo economics. Fuck Reagan, this is the real voodoo economics.

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