Professor Elam

Meredith Whitney Fires Back

Tuesday June 7, 2011

Meredith Whitney has fired back with a more comprehensive report. She now maintains that states are in worse shape than they admit. 

1. Rainy day or surplus funds are being depleted.

2. GO bonds are being used to pay for current expenses, here we go again, borrow long to pay short term operating expense.

3. Pensions are grossly underfunded. 

 

And of course the Federal Govt is now less able to help and in fact is cutting back. 

It is now only  matter of how they will default. I suspect the defaults will take many different forms. Already schools are charging students for traditional activities like being in the band or running track. 

Carl Levin Takes Aim at Goldman

Monday June 6, 2011

The Finance Committee has produced a 600 plus page report alleging that Goldman Sachs bet against its own clients. As GS sold subprime mortgages they shorted that very market. GS was betting the sub prime values would fall. 

While it typically took the US Govt hundreds of pages to make the point, Michael Lewis does it in chapter three of

 

The Big Short.  Reading for context is very important in accounting. Let's hope that everyone will do that this summer. This is another in a series of books about the financial meltdown that will improve your understanding of what is happening. 

Groupon, Is This the Dot.coms all over again?

Sunday June 5, 2011

Groupon is going public, the market cap may well be $30 billion dollars. Financial analysis would have us believe that a company is worth the present discounted value of future earnings. The only flaw here is

 

Groupon does not have any earnings, they have lost money every year, just like the dotcoms. Now who can this be? Read the article and we will discuss this in class. 

SW Air, Wal Mart We're Not

Thursday June 2, 2011

SW Air LUV used to be that scrappy upstart with stews in hot pants and peanuts only. No longer.

As LUV has taken on more routes and grown, the fare prices have risen as well. We will use this article for our first posting in Intermed I this summer. Please read the link, now ponder

How can we use accounting knowledge to analyze LUV?

More routes but what, LUV is not making any more money, what happened?

Now think about the tools you have from cost accounting, what are fixed costs, what are variable costs for any airline?  What kinds of costs have increased with what results?

What has this done to various ratios like Return on Equity, or Return on Assets?

In retrospect was exapnding a great idea?  Now what?

Now, how is accounting different from bookkeeping?