In what has become a disturbing trend, the Senate once again rushed to a final vote on another massive reform package last week. This time, though, the Bill was not as well-publicized as the health care bill from this winter. This time, the financial industry was in the crosshairs of Obama’s “change” pledge.
The Restoring American Financial Stability Act of 2010 (the Act) was passed despite hundreds of amendments that were still pending. The Bill also passed despite the fact that many Senators had NOT EVEN READ IT. This sort of action should not surprise us, because this is exactly the same pattern that was used to pass health care reform earlier this year. Just another day in Washington.
So what does the Act do? The primary goal of the Act is to increase federal regulation of nonconventional investments. A simple way to describe nonconventional investment is to think of them as anything other than stocks, bonds, or money funds that are traded on the open market. Two major types of nonconventional investments are derivatives and hedge funds.
The government is proposing to step up regulation of these types of investments in hopes of avoiding another situation like we had last summer when banks failed and investment companies went bankrupt due partly to reliance on these nonconventional (and highly volatile) investments. These problems, along with the housing crisis, were at the heart of the economic troubles that the country is still feeling today.
President Obama has claimed that the Act will mean that “taxpayers will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts.”
But wait - wasn’t it Obama that gave all of those bailouts just last year?!?!?!? But I digress.
Perhaps the most significant provision of the Act provides a new way for failing banks to liquidate, similar to a bankruptcy process that a normal business would go through. The Act provides the SEC with the ability to regulate derivative markets. The Act also requires SEC registration of hedge funds. That’s a lot of regulation and government oversight, but no substantive changes to the system.
Other provisions of the Act continue this trend, creating new government agencies tasked with monitoring various sectors of the financial markets. The Act also streamlines the supervision of the banking industry, dividing oversight among agencies based on the size of the institution.
Critics argue that the Act is too strong on regulation and too weak on actual changes to the Wall Street systems that caused the problems in the first place. Rather than give banks a different process to go through when they fail, why not do something that would prevent them from failing in the first place?
Critics also argue that the Act does not prevent banks from combining their commercial banking and investment banking operations. This, they argue, continues to subject commercial deposits to investment risk and could leave banks with insufficient assets to cover their deposits.
In the end, only time will tell whether this Act is as good as its supporters think or a flawed as its detractors view it to be. It is also important to note that the Act, though passed by the Senate, may not be in its final form since it still has to be reconciled in Joint Committee with the House version.
As a CPA in tax practice, I can tell you one thing for sure: get ready – once again – to pay higher taxes to fund all of this new government that is being established.
Tuesday, May 25, 2010
Friday, May 21, 2010
The Good News And The Bad News……………………..
The good news for those of us with loans is that interest rates are at extremely low level. In today’s WSJ, New York prime is 3.25%, 30 year mortgages are 5.03%, and 48 month new car loans are at 5.14%. These are very good rates for those of us with debt. The lower rates either allow us to pay our loans off at a faster rate or qualify for larger amounts of debt.
The bad news, however, is that the exceptionally low interest rates coupled with inflationary rates under 1% indicate that the underlying economic structure is not improving. Historically, this country has used a combination of federal taxation and Federal Reserve controls to manage the economy. Stimulating the economy meant lowering federal taxes and reducing interest rates. When the economy over-heated, we did the reverse.
This worked well until the playing field changed. Today we live in a global economy. The things that are occurring in Europe with the Euro, do affect the average American. The same can be said of Asia. We are no longer economic isolationist.
The market has gone “ in the dumper” over the last few weeks because of the Euro crisis. The Euro crisis has been caused, according to the experts, because Greece, Italy and France decided to run their countries on credit. In effect, these countries have become governmental Enron’s and Worldcom’s. They are running on credit without any underlying assets to support the credit.
In response, the Greek government, under extreme pressure for the other European countries, looked to implement austerity programs. In other words, the Greek government proposed to stop living on credit, or at least reduce the degree of credit. In the perfect response from the “me- first” world, one of Greece’s larges unions, said hold on! The union said austerity is fine as long as it isn’t us.
I am hopeful but not optimistic that the U.S. Congress will learn the importance of fiscal responsibility from our European neighbor. I am equally hopeful that we, as Americans, will stand ready to make small sacrifices for the betterment of all should those sacrifices be needed.
So what does all of this mean? It means that not only do we need to take care of ourselves but we need to be intellectually invested in the fiscal interworkings of foreign governments. Our well being depends on other’s accountability.
The bad news, however, is that the exceptionally low interest rates coupled with inflationary rates under 1% indicate that the underlying economic structure is not improving. Historically, this country has used a combination of federal taxation and Federal Reserve controls to manage the economy. Stimulating the economy meant lowering federal taxes and reducing interest rates. When the economy over-heated, we did the reverse.
This worked well until the playing field changed. Today we live in a global economy. The things that are occurring in Europe with the Euro, do affect the average American. The same can be said of Asia. We are no longer economic isolationist.
The market has gone “ in the dumper” over the last few weeks because of the Euro crisis. The Euro crisis has been caused, according to the experts, because Greece, Italy and France decided to run their countries on credit. In effect, these countries have become governmental Enron’s and Worldcom’s. They are running on credit without any underlying assets to support the credit.
In response, the Greek government, under extreme pressure for the other European countries, looked to implement austerity programs. In other words, the Greek government proposed to stop living on credit, or at least reduce the degree of credit. In the perfect response from the “me- first” world, one of Greece’s larges unions, said hold on! The union said austerity is fine as long as it isn’t us.
I am hopeful but not optimistic that the U.S. Congress will learn the importance of fiscal responsibility from our European neighbor. I am equally hopeful that we, as Americans, will stand ready to make small sacrifices for the betterment of all should those sacrifices be needed.
So what does all of this mean? It means that not only do we need to take care of ourselves but we need to be intellectually invested in the fiscal interworkings of foreign governments. Our well being depends on other’s accountability.
Tuesday, May 18, 2010
Fund Balance Reporting Clarified
Fund balance reporting has always been a complex and confusing task. It becomes even more so when funds are classified in a number of ways. Monies in the fund balance can be temporarily restricted, permanently restricted, or unrestricted. Determining which category to slot them in is the tricky part.
Thanks to a Statement issued by the Governmental Accounting Standards Board, the guidelines and definitions for each category have become easier to interpret. The Statement spells out the new definitions and groups the funds based on their spending restrictions. It also calls for new disclosure about how the amounts are classified.
GASB project manager Ken Schermann spoke of the change saying “The standards that governed the fund balance in the old model were subject to inconsistent application and different interpretation of terminology, so what readers thought they were seeing in fund balance classifications may not have been the case, depending on different application or interpretation or definition of the terms in those classification categories”.
Four previously vague definitions have been clarified. “Restricted” amounts include those set by external parties, constitution, or legislation. “Committed” amounts include those determined by a formal action of the government’s highest level of decision-making authority. “Assigned” amounts are set aside for specific governmental purposes, but do not fit the criteria of restricted or committed. “Unassigned” amounts include all spendable amounts not contained in the other classifications.
These new classifications should enhance the consistency between information reported in the government-wide statements and information in the governmental fund financial statements. The new definitions will increase confidence and reduce uncertainty related to fund type classifications.
The Statement goes into effect June 16, 2010. Governmental entities with questions should contact their local CPA or Auditor to begin the implementation process.
Thanks to a Statement issued by the Governmental Accounting Standards Board, the guidelines and definitions for each category have become easier to interpret. The Statement spells out the new definitions and groups the funds based on their spending restrictions. It also calls for new disclosure about how the amounts are classified.
GASB project manager Ken Schermann spoke of the change saying “The standards that governed the fund balance in the old model were subject to inconsistent application and different interpretation of terminology, so what readers thought they were seeing in fund balance classifications may not have been the case, depending on different application or interpretation or definition of the terms in those classification categories”.
Four previously vague definitions have been clarified. “Restricted” amounts include those set by external parties, constitution, or legislation. “Committed” amounts include those determined by a formal action of the government’s highest level of decision-making authority. “Assigned” amounts are set aside for specific governmental purposes, but do not fit the criteria of restricted or committed. “Unassigned” amounts include all spendable amounts not contained in the other classifications.
These new classifications should enhance the consistency between information reported in the government-wide statements and information in the governmental fund financial statements. The new definitions will increase confidence and reduce uncertainty related to fund type classifications.
The Statement goes into effect June 16, 2010. Governmental entities with questions should contact their local CPA or Auditor to begin the implementation process.
Tuesday, May 11, 2010
THE SPURS ARE DEAD…….. BUT ARE THEY BURIED?
The million dollar question in San Antonio these days is “What is the state of the Spurs?” I guess that really should be the multi-million dollar question judging from the size of these quy’s contracts.
Professional sports is big business. It is high stakes poker at the highest level. As a businessman, I certainly don’t envy Peter Holt and staff’s current dilemma. They have invested millions of dollars over the next three years in a pair of 34+ past-their-prime superstars. They have a 6-10 point-center that hasn’t gotten a rebound in two years while making a few million. Throw in a worn out, unmotivated guard that also rakes in millions and Mr. Holt has some issues. Worse yet, the chances of getting a “difference maker” in the number 20 spot in the upcoming draft is rather remote.
Wow, what a tangled web!
But this blog is not about the Spurs. It is about business management. It is about managing your assets and allocating those assets in their highest and best use. It is about making the very tough choices that all managers face regarding their personnel. It is about managing the company’s financial resources in the most efficient manner.
Last year was a difficult year for our CPA firm. Our sales were flat, but our budget and related staffing levels were set to accommodate our average increase of 20% per year. In our business, to be successful, you must have trained staff available to serve new clients. If you wait until you get new customers to add staff, you will lose those clients. So, we staffed and trained based on those historical averages. Oops!
As 2009 trudged on, we realized that sales were not going to hit their historical average. As a result, we had to reduce staff. We had to weigh salary and experience. It is one thing to fire someone that does not do their job; but, it is an entirely different (and difficult) task to terminate people that have been loyal and valued employees. BUT, as the manager, there are times when you have to do what is best for the company’s long term, regardless of the short term pain.
As a manager we must understand our position and the responsibility that accompanies it. Good luck.
Professional sports is big business. It is high stakes poker at the highest level. As a businessman, I certainly don’t envy Peter Holt and staff’s current dilemma. They have invested millions of dollars over the next three years in a pair of 34+ past-their-prime superstars. They have a 6-10 point-center that hasn’t gotten a rebound in two years while making a few million. Throw in a worn out, unmotivated guard that also rakes in millions and Mr. Holt has some issues. Worse yet, the chances of getting a “difference maker” in the number 20 spot in the upcoming draft is rather remote.
Wow, what a tangled web!
But this blog is not about the Spurs. It is about business management. It is about managing your assets and allocating those assets in their highest and best use. It is about making the very tough choices that all managers face regarding their personnel. It is about managing the company’s financial resources in the most efficient manner.
Last year was a difficult year for our CPA firm. Our sales were flat, but our budget and related staffing levels were set to accommodate our average increase of 20% per year. In our business, to be successful, you must have trained staff available to serve new clients. If you wait until you get new customers to add staff, you will lose those clients. So, we staffed and trained based on those historical averages. Oops!
As 2009 trudged on, we realized that sales were not going to hit their historical average. As a result, we had to reduce staff. We had to weigh salary and experience. It is one thing to fire someone that does not do their job; but, it is an entirely different (and difficult) task to terminate people that have been loyal and valued employees. BUT, as the manager, there are times when you have to do what is best for the company’s long term, regardless of the short term pain.
As a manager we must understand our position and the responsibility that accompanies it. Good luck.
Thursday, May 6, 2010
A MOTHER’S DAY THANK-YOU
With Mother’s Day right around the corner, I thought I’d take a moment to recognize the working moms out there, including mine.
Working moms have their job cut out for them. They juggle jobs, kids, cleaning, cooking, washing, folding, and the list goes on. On top of all this, they likely battle with the Big “G” – Guilt.
As a former child of a working mom, I’d like to take this time to say GUILT BE GONE! My mother was, more or less, a single parent. Even with a busy and successful career, she still managed to get my 2 sisters and me fed, dressed, packed for school, and in the car before 7AM every morning. She made it to every softball game, basketball game, volleyball game, and tennis tournament any of us ever had. While she may not have played a round of hoops with us or fielded any balls, she was always present at our events to cheer us on and give support.
She also made a point to take us on a yearly vacation, regardless of how tough the times were. She scrimped and saved and showed us the value of togetherness. Even in our teens, when the phrase “family bonding” made us gag, we took those family vacations. Thank you, mom. Years later, I can appreciate the 7 course meal in China Town that dragged on for hours (I finally fell asleep with my head on the table). Years later, my sister can say she visited the Golden Gate Bridge and Alcatraz (even though she was 17 and wanted to be back home with her boyfriend). Years later, we all have these wonderful memories we can treasure for life.
I was blessed with a working mom. She made me into the strong, assertive, determined, loving, family person I am today. And though I can’t erase the guilt she may have felt years ago, I can say “Thank You”. Thank you for the sacrifices you made, the love you shared, the expectations you set, and the praise you gave when those expectations were surpassed.
For all you working moms out there, GUILT BE GONE! Eventually, your children will be able to fully appreciate your first-class juggling act. So…Happy Mother’s Day and Thank You.
Working moms have their job cut out for them. They juggle jobs, kids, cleaning, cooking, washing, folding, and the list goes on. On top of all this, they likely battle with the Big “G” – Guilt.
As a former child of a working mom, I’d like to take this time to say GUILT BE GONE! My mother was, more or less, a single parent. Even with a busy and successful career, she still managed to get my 2 sisters and me fed, dressed, packed for school, and in the car before 7AM every morning. She made it to every softball game, basketball game, volleyball game, and tennis tournament any of us ever had. While she may not have played a round of hoops with us or fielded any balls, she was always present at our events to cheer us on and give support.
She also made a point to take us on a yearly vacation, regardless of how tough the times were. She scrimped and saved and showed us the value of togetherness. Even in our teens, when the phrase “family bonding” made us gag, we took those family vacations. Thank you, mom. Years later, I can appreciate the 7 course meal in China Town that dragged on for hours (I finally fell asleep with my head on the table). Years later, my sister can say she visited the Golden Gate Bridge and Alcatraz (even though she was 17 and wanted to be back home with her boyfriend). Years later, we all have these wonderful memories we can treasure for life.
I was blessed with a working mom. She made me into the strong, assertive, determined, loving, family person I am today. And though I can’t erase the guilt she may have felt years ago, I can say “Thank You”. Thank you for the sacrifices you made, the love you shared, the expectations you set, and the praise you gave when those expectations were surpassed.
For all you working moms out there, GUILT BE GONE! Eventually, your children will be able to fully appreciate your first-class juggling act. So…Happy Mother’s Day and Thank You.
Wednesday, May 5, 2010
Protecting Your Identity in the “Social Media Age”
Social Media isn’t the “next big thing” – it’s here now. Everyone from college students to businesses to little old grandmothers are signing on to web sites like Facebook, Twitter, and LinkedIn. It has never been easier to connect with friends, relatives, and colleagues than it is now.
Unfortunately, that type of networking ability can come with a price. Identity theft is nothing new - from stealing credit card numbers to generating fake IDs, criminals have been finding new and creative ways to make a buck at someone else’s expense. Social media outlets are proving to be a major new source of data that identity thieves can – and do – use.
It is frightening to consider the amount of personal data that can be acquired by anyone with access to a computer. There is even a website out there now called spokeo.com that gathers all of the available information about someone together in one convenient place! Go to their site and type your name in...it will tell you your address, marital status, occupation, household income, number of people in the family, and even your home value. Where does it get this data? You guessed it – your social media pages. Facebook accounts offer the ability for a user to add almost any kind of personal data imaginable to their profile. This information is then subject to identity theft.
So how can you manage your online identity and prevent your social media outlets from turning into a source of data for thieves? Here are five tips that you can use to keep your online identity safe:
1. Whenever possible, do not put any more information than you have to out there. This seems so simple, yet no one thinks twice about filling out the form completely when they register. If the data isn’t there, it can’t be mined.
2. Sign up for Google Alerts. This free service will notify you any time your name pops up online and you can head off potential problems before they grow out of control.
3. Reserve your name on all the major networking sites. This may seem like a strange idea at first glance, but if you have taken your name, no one else can. Just avoid putting in all of your data (see #1) – especially if it is a site you don’t plan to visit often.
4. Make sure you have security software on your computer. Public sites are perfect breeding grounds for spyware or viruses that can attack your machine and get personal data, even if it is not published on the internet.
5. Limit your contacts on social media sites to people that you actually know. Fake profiles are a good way for thieves to bypass the privacy settings on most sites and allow them access to even your private profile data.
While there is no way to guarantee that you will not be a victim of identity theft, following these five guidelines will at least help keep social media sites what they were intended to be – fun.
Unfortunately, that type of networking ability can come with a price. Identity theft is nothing new - from stealing credit card numbers to generating fake IDs, criminals have been finding new and creative ways to make a buck at someone else’s expense. Social media outlets are proving to be a major new source of data that identity thieves can – and do – use.
It is frightening to consider the amount of personal data that can be acquired by anyone with access to a computer. There is even a website out there now called spokeo.com that gathers all of the available information about someone together in one convenient place! Go to their site and type your name in...it will tell you your address, marital status, occupation, household income, number of people in the family, and even your home value. Where does it get this data? You guessed it – your social media pages. Facebook accounts offer the ability for a user to add almost any kind of personal data imaginable to their profile. This information is then subject to identity theft.
So how can you manage your online identity and prevent your social media outlets from turning into a source of data for thieves? Here are five tips that you can use to keep your online identity safe:
1. Whenever possible, do not put any more information than you have to out there. This seems so simple, yet no one thinks twice about filling out the form completely when they register. If the data isn’t there, it can’t be mined.
2. Sign up for Google Alerts. This free service will notify you any time your name pops up online and you can head off potential problems before they grow out of control.
3. Reserve your name on all the major networking sites. This may seem like a strange idea at first glance, but if you have taken your name, no one else can. Just avoid putting in all of your data (see #1) – especially if it is a site you don’t plan to visit often.
4. Make sure you have security software on your computer. Public sites are perfect breeding grounds for spyware or viruses that can attack your machine and get personal data, even if it is not published on the internet.
5. Limit your contacts on social media sites to people that you actually know. Fake profiles are a good way for thieves to bypass the privacy settings on most sites and allow them access to even your private profile data.
While there is no way to guarantee that you will not be a victim of identity theft, following these five guidelines will at least help keep social media sites what they were intended to be – fun.
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