Archive for February, 2011
Limited Liability Partnerships

I am gob smacked, absolutely gob smacked at the latest manifestation of just how much of our cultural inheritance we have trashed. They may sound innocuous or even boring but “Limited Liability Partnerships” are a newfangled creation that has taken the accounting world by storm. Talk about corrupting the basis from which so much of our wealth has been generated.

Personal liability is a strong incentive to ensure your company does the right thing. It will make you particularly careful about your choice of partner. It will also make you more likely to look beyond the dollars they bring the partnership and ensure they behave appropriately. It was the basis upon which accounting firms worked, until various jurisdictions created limited liability partnerships.

Limiting partners liability reduces their incentive to ensure decent behavior. It is no surprise that this bastardized form of partnership came to the fore at the turn of the last century. Just in time to limit the liability of all those auditors happily signing off on fraudulent accounts. Safe in the knowledge they would not be sued for every penny their partners are worth. And safe they are, if my reading of Wikipedia is correct then PwC and Ernst & Young are limited liability Partnerships. Deloitte is limited by guarantee, whatever that means. KPMG is also a limited liability partnership in the US – registered in Delaware, that paragon of corporate standards. It’s enough to make one think the big 4 should lose their lock on auditing multinationals accounts. Perhaps it’s time to end the requirement for all of a multinationals subsidiaries to be audited by the same firm. It would certainly lower audit costs.

Is it any wonder that things really started to go crazy after the integrity of the accounting profession was undermined? How can the stock market fulfill its function when public accounts are often fraudulent fabrications? What will that eventually do to our faith in capitalism? Actually stock markets are failing badly at the moment anyway. They are floating ever higher on low turnover high frequency trading, despite unprecedented levels of liquidity. They really do not have much to do with funding new productive ventures anymore.

One trusted institution and profession has been trashed after another as our societies become ever more compromised. Destroying the cultural intangibles that enabled us to become wealthy is not progress. But it is happening and manifesting itself in so many different areas. Once academics argued about weather there was such a thing as truth. Now Presidents and Prime Ministers tell bare faced lies. Honesty and integrity are so yesterday. Unfortunately they are requirements for a wealthy tomorrow.

Once upon a time politicians tried to improve your well-being. Now they seem intent on replacing you with someone more likely to vote their way. It is as if they do not care what they destroy as long as they win the next election. I guess if you kill the engine of growth you make it far more important to take as much of the existing wealth as possible. After all, there will not be a whole lot more of it down the line. It is such a shame. Historians may look upon this as a gilded age of unprecedented wealth and well-being. Much as our ancestors used to view ancient Rome and Greece.

We had a great deal of cultural capital at our disposal. Capitalism is such a powerful mechanism for driving productivity gains. Much of society can operate without capitalist incentives and we will still get wealthier. But at the moment we are sabotaging our future in so many ways. We are trashing the cultural intangibles we inherited from our forebears.

It is our cultural capital that enables us to live lives of relative ease and plenty. Our cultural capital forms the very foundation of our civilization. It is not just science that stands on the shoulders of giants, but all of us.

The Fugly Future

Just spent a happy hour ironing my shirts for the week. Not because I enjoyed  ironing, but because I listened to this podcast:

Mapping The Fugly Future with David Collum

The odd state of seeing reality through a different lens than the majority. How does one tell when the minority opinion is actually the more accurate one?

The unprecendented flood of global credit (which David calls “debt without borders”) that, when combined with the unfunded liabilities many countries are saddled with, presents the epitome of an unsustainable financial system. Sovereign insolvency is much more common in history than we believe, and we are likely to see much more of it in the next decade than we have in the several preceeding ones.

The inflation/deflation debate. Will things end in default (the “eat-and-dash” outcome) or massive money printing? David and Chris agree that it looks increasingly like the inflationists will win out.

How our financial system has stopped pricing risk, creating dangerous asset bubbles and bad incentives, and resulting in truly detrimental decision-making.

The systemic rot than needs to be purged before a more ‘healthy’ recovery can emerge. Today’s ills of rampant lying/fraud, magical accounting, Teflon bankers, and torpid citizenry must be dealth with. Too few (who often don’t comprehend the extent of their actions) are determining the fate of too many. The lack of checks and balances as well as real leadership add to the burdens we currently face in addressing these issues head on. We’re not yet taking the rational steps to correct the system.

What can I say. It’s rarely that I hear such a concise and well reasoned exposition of what I think. I could have saved myself much time if I’d signed up to Chris Martenson‘s weekly email notification years ago. I suggest you do.

Jesse’s Cafe has another great post on silver:

Silver Bankers May Be Sitting on Big Derivatives Losses and the Fed May Be Funding Them

The comment and analysis below is from Harvey Organ‘s most recent commentary.

“The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November ( shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.

Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of:

7 billion oz of silver( 32.30-15.00) = 7 billion x $17.30 = 121.1 billion dollars of losses.

This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.

If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:

4 billion x 17.30 or 69 billion dollars.

Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation.”

This situation merely highlights Obama’s failure as a reformer, and the general failure of both parties to act in positions of trust for the American people, rather than the special interests that provide them money and sincecures after they leave office.

If correct then when the market corrects it will not be a smooth transition to a “new normal” but a jump. It will also cause considerable collateral damage.

Indoctrination not education

This post made me think of the new Australian curriculum:

Classroom Climate Conditioning at work: the plotting, the preaching, the results

For me this is a sinister, spine-chilling video from way back in 2008, but I can see how the faithful would be pleased with it, giving insight as it does into the equivalent of two senior Jesuits ensuring the doctrinal correctness of a parish priest with teaching duties.

A professor, a PR/communications man, and a teacher are sitting by a window discussing how best to convert children into political activists for their cause. Frequent shots from the classroom are spliced in to show their schemes in action, and interviews with some pupils at the end demonstrate some success – youngsters now guilt-ridden, and keen to ‘take action’.

The pernicious effect of national curricula and state set exams should not be underestimated. Some kids take some of it in. Parties of the right normally do not confront the resulting ideological shift to the left. Their main supporters are often too busy earning a living to fight philosophical battles. Ordinary people assume schools will educate rather than indoctrinate their kids.

But schools indoctrinate. The youth without much knowledge to help them understand the flaws of the left often fall for the presented ideological view. Eventually the parties of the right charge down some aspect of the socialist path while chasing the “youth” vote. Some of their leaders try to appear hip and trendy by affecting the same views as the indoctrinated “youth”. Some might actually share their ignorance. In today’s world profound ignorance often crosses all ideological, class and professional boundaries.

Thus ends our civilization. Not with a bang, but with a whimper. Or more accurately a series of whimpers. A series of whimpers  from generations of children being indoctrinated against their will. Think of the poor kids being forced to inculcate and regurgitate all that politically correct clap trap throughout their school years. Only to then get the “pleasure” of living in the resulting dysfunctional left wing world. At least until reality asserts itself.

For reality always wins in the end. It wins in matters economic as well as climate. It’ll be much harder to make the kids believe in global warming now many of their schools have been closed because of too much snow. Too much snow which occurred at a place and time for which climate alarmists used to predict snow would be nothing but a distant memory. Just as the 2011 Australian floods occurred despite climate alarmists predictions of a climate change induced everlasting drought. There was to be no more rain like there used to be. Hence no point building dams.