Re: General Thery seminar

["ÁÎ×Ó¹â HenryC.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

You point about corporate accounting is well taken.  Yet, the fundamental
characteristics of a healthy market is that however the rules are imperfect,
they must be applicable to all participants - the so-called level playing
field.  So while current legal, acceptable corporate accounting methods creates
unfair dealings between investors and management, it does force all managements
to compete equally.  The same applies to the issue of corporate governance,
which strikes at the core of corporate capitalism.  The issue of "shareholder
value" has been the effective tool of corporate raiders against management since
the 80s.

To give these issues a current example, lets look at the GM announcement this
morning.  Jack Smith is relinguishing his CEO authority to Rick Wagoner as of
June 1, 2000 while remaining Chairman "indefinitely".
Yesterday, the GM board approved a plan to offer shareholders $8 billion in
tracking stock in its Hughes unit and to contribute an additional $7 billion of
the securities  to retirement plans.  The news added $2.9 billion to GM's market
capitalization value even though the move had been anticipated.  It unlocks the
value of Hughes and distribute about 50% of GM's stake (cutting it from 69% to
35% when completed by end of June)  in a complex deal that would let GM
shareholders swap some stocks tax free for the Hughes tracking stocks.
This helps the automaker's embarrassingly low P/E ratio multiples with Hughes'
high multiples, which is a high tech/communication outfit.  It will also
translate into an increase in GM's earnings per share.  The fact that GM's
business is cyclical and Hughes is less so is also consider a plus with the
remaining 35% stake in Hughes, as a "security blanket".
For the $7 billion allocation to the benefit funds, GM would receive a tax
credit of $2.8 billion and be relieved of annual cash contributions of $700
million.

Jack Smith said that the realization of $15 billion of Hughes' value would be
used to improve GM's financial flexibility (balance sheet and cash flow) to
pursue business and grow initiatives in automotive and financial services
businesses.
Stock buybacks and new acquisitions, such as the Daewoo deal, are part of thes
initiatives.

Now all this is possible mainly because of tax and regulatory regimes.
I don't know if economists would view this merely as inter-company transfer, but
a lot of growth (and wealth) has just been created by the paper shuffling.

Henry C.K. Liu

Ronald Calitri wrote:

> Replies to
>
> >From: ÁÎ×Ó¹â HenryC.K.Liu
> >
> > Ronald Calitri wrote:
> >
> > > Paul Henry Barkley Ted
> > >     Henry's model is actually quite good. It is however, a crowded
> terrain
> > > compiled from many papers. The financial market emulates academic
> finance;
> > > and there wouldn't be a game if everybody wasn't able to win at least
> > > somewhat consistently. By the way, Henry you are right that returns are
> > > falsifiable; you neglect to note this is the standard practice in most
> > > living corporations. The indices are compiled with error.
> >
> > The SEC has consistently challenged corporate practice of excessive
> onetime
> > write-offs as a devise to inflate futre growth.  The issue of transparency
> is
> > crtical at all levels and is one issue consitently mentioned in dislogues
> on
> > financial system reform.
> Sorry, much of the manipulation of debits and credits is allowed by the
> system.
>
>  The territorial based statistical standards as
> > stipulated UN's System of National Accounts are a joke, asn especially so
> when
> > e-commerce becomes widespread.  GDP alone can be measured using the
> expenditure or production aproaches and the two are no required to balance.
> A discrepancy of 3% is not unusual.
>
> I am not that interested in only large one-time writeoffs, nor do national
> accounts  enter. They are not synchronous in frequency with movements of
> internal corporate accounts. I mean the routine shuffling for temporary
> purposes that is allowed between quarters or even years.
>
> >
> > Also, there are all kinds on off-the-book financial obligations, such as
> > convertible bonds.
>
> >
> > Now the defintion of error or flase reporting is very complex.  As long as
> an
> > institutioin is able is stand behind its errors, not one really care or is
> able
> > to find out.  Errors or falsehoods are frequently "discovered" only after
> a
> > default.  That is how Ponzi schemes keep coming back.
> >
>
> I am sorry, I am not talking about Ponzi schemes, nor about the simplistic
> one-time falsehoods that mar reputations. I am talking about the systematic
> exercise of corporate accounting through a variety of organizational levels.
> Frequently indeed, they are for the purpose of internal financing and so
> must be regarded as pervasive elements of the economic structure. I suggest
> that at best technical analysis is deliberately incompetent  in this area.
> This order is maintained so as to enable the currency of good old-fashioned
> inside information and employment of corporate finance graduates.  Knowledge
> of this forms the core of good old-fashioned securities analysis, that
> called itself "fundamentalist". It was handed down from the 40's through the
> 80's in successive editions of Securities Analysis by Graham and Dodd.
>
> This fundamental uncertainty is of course profusely studied.
>
> Ronald Calitri
>
> > Henry C.K. Liu
> >
> >