Professor Elam

The Repo Market Explained

Tuesday Sept 24, 2019

Here is a concise explanation of the repo market.

The repo market is a system of overnight loans paid back the next day.  Collateral should be low risk Treasury securities. The narrator explains how Lehman got in trouble, using low grade collateral and eventually there was no one on the other side of the trade. And Lehman was issuing short term commercial paper in its own name while borrowing 10x that amount to purchase  longer term sub prime mortgages

PwC Pays $8 M Fine

Tuesday Sept 24 2019

I copied part of ther article in the WSJ below.  How is it that Sprankle can be personally fined, barred from practicing before the SEC for four years, and remain a partner?  Truly these firms are Too Big to Fail. What message does this send to all the other employees at PwC?  Break the rules, we look the other way?

PricewaterhouseCoopers LLP is preparing to pay about $8 million to settle claims of improper professional conduct and violating auditor independence rules, the U.S. Securities and Exchange Commission said Monday.

The regulator said it also charged Brandon Sprankle, a partner at the Big Four audit firm, for causing the firm to violate independence rules.

The allegations of improper conduct were in connection to a total of 19 engagements with 15 unidentified companies over a three-year period ending in 2016.

The activity violated a rule issued by the Public Company Accounting Oversight Board—which regulates U.S. audit firms and is overseen by the SEC—which required the firm obtain preapproval from an audit client’s audit committee to perform nonaudit services related to internal controls over financial reporting. The audit firm also must fully detail its work to the company’s audit committee in writing.

In several cases, PwC mischaracterized nonaudit work as audit services to auditor committees, the SEC said. The firm failed to adequately review and monitor whether audit clients’ audit committees had approved the nonauditing services it was providing, the SEC

The frequency of PwC’s alleged improper conduct over that period could be part of a systemic industry problem, Michael Shaub, an accounting professor at Texas A&M University’s Mays Business School, said in an interview. “Trust probably builds between the auditor and the audit committee and, over time, it leads to sloppiness,” Mr. Shaub said.

 

The alleged violation of auditor independence rules involves one unnamed company in 2014. PwC made decisions over the implementation and design of an audit client’s financial-statement software, thus violating rules that prohibit an independent auditor from performing management functions.

Mr. Sprankle, who is based in California and has been a partner at PwC since 2014, agreed to a $25,000 civil money penalty and suspension from practicing or appearing before the SEC. He can apply for reinstatement after four years.

Mr. Sprankle continues to serve as a partner at the firm, a PwC spokesperson said.

 

TXCPA Fall Accounting Career Workshop

Posted Monday Sept 23 2019

https://sacpasociety.com/continuing-education-events/save-the-date-fall-2019-accounting-careers-workshop/

 

This Friday Sept  27 5 30 - 9 00 plan to arrive way early as the traffic on north 410 late Friday is impossible to navigate

Norris Conference Center

Register above

Rogue Trader Causes $320 M Loss at Mitsubishi

Friday Sept 20 2019

A Rogue Trader at Mitsubishi causesd a $320 M loss in oil fututures.

While that is small in comparison to Mitsu overall profit, how embarassing an internal control failure.

 

Mays Center Hosts Volunteer Organizations

Wednesday Sept 18 2019

The Mays Center hosted a group of  volunteer non profits on campus today. Students and faculty had the chance to interface with them one on one.

 

I visited with Mary Flannigan, Director of Communications and Partnerships at SA Youth Literacy.

 

 

 

 

 

 

 

 

 

 

This group recruits volunteers to assist second graders with a reading program. Testing begins in the third grade. So  assisting with a push toward reading makes sense at this time. We see the results of testing reading out of education. Far too often not college ready means a lack of reading comprehension, what did you read?  And good writing only results from good reading.

Felicity Huffman Gets 14Days in Jail

Friday Sept  13 2019

https://www.yahoo.com/entertainment/felicity-huffman-sentenced-college-admissions-scandal-195146827.html

Felicity Huffman gets 14 days in jail for an attempt costing $15 K to get her daugher into a college of her choice.

 

 

Gee what do you suppose her legal bills are now?

Why not just contribute a half million to the school, perfectly legal, and bingo, daughter admitted.

Geez

 

KPMG Cchief Auditor Convicted and Sentenced

Thursday Sept 12 2019

See page B 10 ij today's WSJ for the story on yet another KPMG ethical failure.

The top auditor bribed and or stole information about which audits the PCAOB would examine.

It is rare for a Big Four auditor to get jail time but he is sentenced to one year and one day which allows for an earlier parole.

He states he never imagined he wold commit a crime

 

T Boone Pickes Dies at Age 91

Thursday Sept  12 2019

T Boone Pickens is described as a corporart raider. Except he never succeeded in taking over any firm.

Here is a list of links to learn about the up and down career  of a famous Texan.

James Stewart's prize winning account of Drexel and the Take Over Mania

https://www.amazon.com/Den-Thieves-James-B-Stewart-ebook/dp/B008TRU7PE/ref=sr_1_1?crid=170DFGPTZGD2D&keywords=den+of+theives&qid=1568293726&s=books&sprefix=den+of+theives%2Caps%2C356&sr=1-1

 

Drexel Burnham Lambert

https://en.wikipedia.org/wiki/Drexel_Burnham_Lambert

 

Michael Miliken

 

https://en.wikipedia.org/wiki/Michael_Milken

 

T Bone Pickens

 

https://en.wikipedia.org/wiki/T._Boone_Pickens

Luby's Explores Possible Sale

Thursday Sept 12, 2019

Luby's is exploring a possible sale.

The stock has traded in low single digits for years while losing money.  Cafeterias have closed.  The Pappas Brothers are in control of the firm which also includes Fuddruckers. About 25 years ago senior citizens made Lubys a real item. I suspect as one student remarked, that concept of open food in steam trays is not appealing any longer.  Golden Corral has also diminished with the same formula.

The stock price has been in decline for years.

The Minard System

Thursday Sept 12, 2019

Today's selection -- from The Minard System by Sandra Rendgen.

In an age when the use and importance of data and statistics were first emerging, Charles Joseph Minard (1781-1870) pioneered the use of visuals to portray that data. His most famous chart, published in 1869 and revered by those in his field, shows Napoleon's army of 422,000 soldiers marching to Moscow and returning as a decimated force of only 10,000: "This work has stood out from Minard's extensive oeuvre for a long time and continues to do so today. Its fame has even produced some curious momentos, such as a T-shirt feauturing [it]. ... Much of this selective fame can be traced back to the enthusiastic praise that the American statistician and political scientist Edward Tufte (b. 1942) bestowed on this graphic. He reasoned that 'it may well be the best statistical graphic ever drawn,' and published a facsimile of it. ... "The source of Minard's prevail­ing fame [is] his flow map relating to Napo­leon's Russian Campaign in 1812-1813 [below]. It is puzzling that it is so often shown as an isolated work when it actu­ally forms part of a comparison with a second flow map, which covers the 218 BC march of Carthagian commander Hannibal who, along with an army of ninety thousand men, crossed over the Alps toward Rome. The two maps show the 'progressive losses in men' that both armies suffered. The flows are construct­ed to the same scale. It is important to note that both campaigns consisted of countless separate movements and were interrupted by battles, overnight stays, retreats and advances, and the parting and reunion of troops. To show both campaigns as a constant flow is 'an effective generalization of a historic event.' "The Napoleon graphic manages to integrate six data variables in a con­densed representation devoid of visual clutter. Its base map is strikingly reduced -- except for a few rivers, barely any landscape features are delineated. The westernmost point is the city of Kowno (Kaunas, in what is today Lithuania) on the river Neman. In the east the city of Moscow is the extreme point of the flow. Note that the place names are neither consistently local nor taken from any par­ticular language but switch from French to German to Slavic. The flow enters Russia from Poland with 422,000 men; the retreating army crosses the Neman with only 10,000 men remaining. The graphic is enhanced by a temperature diagram (referring to the Réaumur scale) connected to the retreating flow. Contrary to conventional line diagrams, this one has the time running from right to left in order to follow the westward retreat. "A notable 'narrative' label on the lower left-hand side of the map reads, 'The Cossacks gallop over the frozen Neman.' This isolated test is connected to a spot on the Neman, located in the brown flow entering Russia. However, as we speak of Cossacks and the frozen river, the label can only refer to Russian soldiers chasing the retreating French army in the winter. We may assume then, that Minard here -- in an interesting impulse to complete the 'narrative' contained in the map -- 'told' the end of the story with an anecdote from the retreat and linked it to a particular location on the river.

Charles Minard's map of Napoleon's disastrous Russian campaign of 1812. The graphic is notable for its representation in two dimensions of six types of data: the number of Napoleon's troops; distance; temperature; the latitude and longitude; direction of travel; and location relative to specific dates.

"In the text Minard listed the books from which he had extracted his data. This must have been a rather laborious process, given that 'the army' consisted of countless military units from many parts of Europe,' "In comparison, the Hannibal base map is more detailed. It emphasizes the coastlines of Spain, southern France, and Italy, and includes the mountain ranges of the Pyrenees and the Alps, both of which formed fatal barriers for Hannibal's army. Note that the region is rotated eastward to make the coast­line fit the horizontal format. The scale along the bottom refers to leagues, an ancient unit of length. Due to the consistent scaling in both maps -- as be­fore, this was a priority for Minard -- Hannibal's losses seem rather modest. He had, however, lost some sixty-eight thousand men in this march, amounting to 72 percent of his troops. "Minard based his representationon the ancient account in Polybius's Histories, as well as some advice from contemporary historians. The map arrestingly conveys a sense of the fatal moments of the campaign. When Hanni­bal approached the Alps, he had forty-­six thousand soldiers at his command­ meaning that forty-eight thousand sol­diers had already been lost. For instance, the crossing of the river Ebro (today in Spain) had resulted in fourteen thousand losses, and the Pyrenees, twenty thou­sand. Losses were due not only to natural obstacles such as rivers and mountains, but also to numerous unexpected battles against local tribes along the way. "This gruesome impression is deeply intensified by looking at the diminishing flow that visualizes Napoleon's army in Russia. To this day, it is an excruciat­ing exercise to read eyewitness reports by soldiers who survived the retreat. Minard created his visualization more than fifty years after the campaign. It is a brilliant conceptual transfer: in apply­ing the flow method to a military cam­paign, Minard shifts his entire focus to a single variable: the number of people in the flow. This variable sees only one type of variation -- a sharp and steady decline. It seems to have been this potent and poignant message that made these two maps (and particularly the Napoleon one) so successful in telling a story about the cataclysm of war."