MichaelZZ

9 Comments

    • Lehman's Lies [view article]
      BANKING “CRISIS”

      One cannot resolve a problem unless one understands the problem.

      PROBLEM: Financial institutions have reduced their lending.
      The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

      Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
      The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
      After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
      This is the crux of the problem.

      The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
      Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
      If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
      Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

      PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.

      Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
      This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
      The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

      Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
      The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
      Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
      Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
      Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
      It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

      If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


      BEST PLAN (Recapitalization):
      1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

      2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

      Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
      Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

      Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
      We are experiencing pain regarding this financial phenomenon.

      3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
      The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
      Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
      We either believe in capitalism or we don’t.

      We will have displayed a pragmatic solution well within the parameters of capitalism.
      The U.S. dollar will strengthen.
      The next step would be to address the underlying economics with the basic problem being unbridled greed.
      We should not have a "shot" stimulant as we did earlier.
      We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
      This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.



      Michael Z
      Sherman Oaks, Ca.
       Oct 06 01:27 PM
    • The Great Bank Rush of 2008: What's the Money For? [view article]
      FINANCIAL “CRISIS”

      One cannot resolve a problem unless one understands the problem.

      PROBLEM: Financial institutions have reduced their lending.
      The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

      Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
      The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
      After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
      This is the crux of the problem.

      The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
      Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
      If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
      Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

      PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.

      Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
      This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
      The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

      Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
      The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
      Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
      Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
      Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
      It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

      If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


      BEST PLAN:
      1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

      2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

      Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
      Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

      Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
      We are experiencing pain regarding this financial phenomenon.

      3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
      The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
      Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
      We either believe in capitalism or we don’t.

      We will have displayed a pragmatic solution well within the parameters of capitalism.
      The U.S. dollar will strengthen.
      The next step would be to address the underlying economics with the basic problem being unbridled greed.
      We should not have a "shot" stimulant as we did earlier.
      We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
      This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

      I will appreciate all comments regarding the foregoing.



      Michael Z
      Sherman Oaks, Ca.
       Sep 29 10:59 AM
    • Paulson: Dracula or Uncle Sam? [view article]
      FINANCIAL “CRISIS”

      One cannot resolve a problem unless one understands the problem.

      PROBLEM: Financial institutions have reduced their lending.
      The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

      Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
      The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
      After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
      This is the crux of the problem.

      The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
      Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
      If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
      Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

      PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.

      Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
      This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
      The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

      Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
      The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
      Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
      Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
      Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
      It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

      If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


      BEST PLAN:
      1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

      2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

      Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
      Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

      Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
      We are experiencing pain regarding this financial phenomenon.

      3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
      The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
      Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
      We either believe in capitalism or we don’t.

      We will have displayed a pragmatic solution well within the parameters of capitalism.
      The U.S. dollar will strengthen.
      The next step would be to address the underlying economics with the basic problem being unbridled greed.
      We should not have a "shot" stimulant as we did earlier.
      We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
      This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

      I will appreciate all comments regarding the foregoing.



      Michael Z
      Sherman Oaks, Ca.
      Sep 29 10:49 AM
    • Can Capitalism Survive Its Latest Entanglement With Socialism? [view article]
      FINANCIAL “CRISIS”

      One cannot resolve a problem unless one understands the problem.

      PROBLEM: Financial institutions have reduced their lending.
      The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

      Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
      The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
      After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
      This is the crux of the problem.

      The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
      Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
      If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
      Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

      PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.

      Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
      This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
      The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

      Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
      The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
      Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
      Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
      Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
      It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

      If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


      BEST PLAN:
      1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

      2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

      Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
      Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

      Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
      We are experiencing pain regarding this financial phenomenon.

      3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
      The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
      Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
      We either believe in capitalism or we don’t.

      We will have displayed a pragmatic solution well within the parameters of capitalism.
      The U.S. dollar will strengthen.
      The next step would be to address the underlying economics with the basic problem being unbridled greed.
      We should not have a "shot" stimulant as we did earlier.
      We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
      This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

      I will appreciate all comments regarding the foregoing.



      Michael Z
      Sherman Oaks, Ca.

       Sep 29 06:25 AM
    • Putting the Perception and Reality of the Financial Crisis Into Perspective [view article]
      FINANCIAL “CRISIS”

      One cannot resolve a problem unless one understands the problem.

      PROBLEM: Financial institutions have reduced their lending.
      The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

      Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
      The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
      After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
      This is the crux of the problem.

      The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
      Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
      If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
      Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

      PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.

      Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
      This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
      The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

      Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
      The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
      Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
      Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
      Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
      It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

      If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


      BEST PLAN:
      1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

      2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

      Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
      Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

      Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
      We are experiencing pain regarding this financial phenomenon.

      3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
      The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
      Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
      We either believe in capitalism or we don’t.

      We will have displayed a pragmatic solution well within the parameters of capitalism.
      The U.S. dollar will strengthen.
      The next step would be to address the underlying economics with the basic problem being unbridled greed.
      We should not have a "shot" stimulant as we did earlier.
      We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
      This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

      I will appreciate all comments regarding the foregoing.



      Michael Z
      Sherman Oaks, Ca.
       Sep 29 04:48 AM
    • Anyone Want a Cheap Coca-Cola? [view article]
      In June 1998, a CPA friend asked me to look at the securities within his company's retirement program.
      KO was a substantial portion of the portfolio.
      Although my analysis was somewhat cursory, I, strongly, recommended that he sell his entire position in KO.
      Co-incidentally, KO was at it apogee (88+).
      He laughed, explaining that many millionaires had been made due to KO.
      I reflected that I didn’t care.
      The discussion went back and forth, but I failed to convince him.

      Circa early 2000, he called me to tell me, that a few days prior, he had bought more KO @ $58, and now the price was $62.

      Beginning in 1999, I was posting on Yahoo’s KO message board. As far as I know, the messages are still available for review, as I had began digging into the history of Coca-Cola and KO
      I, almost, pleaded with readers to sell their respective positions.
      My comments were greeted with severe animosity, which was to be expected, considering the venue.
      I offered my rationale with facts, figures, and calculations.
      I suggested that KO was, perhaps, reasonably valued in the mid-40’s.

      Due to senility, I can’t recall if it were 2000 or 2001, but I saw a recommendation from Merrill Lynch, early in the year, that they were placing KO on its Focus listing.
      I called Merrill Lynch (NY) and attempted to reach Douglas Lane, the Merrill KO guru.
      Instead, I spoke with a female VP. We had a very cordial conversation, during which she explained the logistics of what happened.
      KO was recommended to the Focus one committee, although, she said, the technicians HATE the stock.
      I posted this information on the KO board.
      Interestingly, it seems like a few months later, Eliot Spitzer began to investigate firms that recommended securities to the public while, internally, they were negative on the recommendations.
      Interesting.

      Coca-Cola was perhaps the Granddaddy of SPE’s, possibly courtesy of Douglas Ivester.
      It’s SPE was Coca-Cola Enterprises, Inc. (CCE).
      It appeared to me that Coca-Cola (CC) was buying small to medium size bottlers and reselling them to CCE at substantially higher prices.
      The bulk of this activity appeared to occur between 1995 and 1997, which co-incidentally saw 17-18 earnings growth in Coca-Cola’s earnings, and a PE for KO to run up to the 50’s.
      It seems like a scenario for a film, but that is when I began looking at this company, i.e., the end of this 3-year period.

      I invite readers to review the balance sheet of CCE of 1998 and 1999.
      Almost all mature companies have goodwill (costs of underlying assets purchased in excess of tangible value) on their books, as did CCE.
      It was the remarkable amount of “goodwill” on the books of CCE that should startle any reader. Yes…, I was startled.
      Whereas the stockholders’ equity was around $3 billion, the goodwill was sitting at a lofty and unbelievable $14 billion! I think the long-term debt was around $8 billion.
      My perception was that the purchases from Coca-Cola created most of the enormous goodwill.

      The foregoing has not yet been addressed. I am quite confident that the SEC is fully aware……….

      The most recent “creativity” began 1998/1999.

      Coca-Cola asked CCE to place stand-alone point-of-purchase displays in supermarkets, sporting goods stores, service stations, in fact, anywhere it could do so.
      Coca-Cola would pay for the costs of these displays.

      These are not exact numbers, but this will offer the concept used. Coca-Cola would pay CCE $300 million.

      Here’s where the concept stretches credibility far beyond limitations.

      Coca-Cola used a 12-year amortization for the funds, i.e., would capitalized the funds and amortize $25 million per year.
      CCE, when the funds were received, characterized the monies as income in the year received.
      Thus, this transaction, which was, in total, a wash when considering the two entities, together, created $275 million in income ($300 MM income for CCE less the $25 MM amortization expense at Coca-Cola).
      Neat trick?

      In 2001, I contacted and had discussions with a very senior official at the SEC. Although I offered all the information I had, he would respond that the SEC could not expose any information, which concept should be changed, but that is for another day.
      Apparently, during our series of conversations, he made contact with Coca-Cola’s controller, Connie M. I discovered this through a FOIA request.
      In a letter to Connie, he had asked why she felt it was justified for CCE to record the $300 MM as income. She said it was because they had to put the funds out before receiving from Coca-Cola, which is, obviously, laughable. It was a timing-difference.
      And this answer was from Coca-Cola’s controller who was a CPA.

      Due to the above, CCE took a $301 million charge in the Q4 of 2001 and described the charge as “a change from one acceptable accounting principle to another acceptable accounting principle”, thus it was recorded as a one-time extraordinary charge.
      The charge was do to an accounting error, not a change from one acceptable method to another and as such, the financials, for the periods affected, should have been restated.

      That treatment was to prevent restatements of prior periods, which would have exposed the fact that CCE’s earnings did not justify the carrying value of the $14 billion of goodwill. A write-down beyond $3 billion would have reflected the insolvency of CCE and would have necessitated a “going-concern” comment by E&Y on the published financials.

      According to my notes, on January 24, 2002, at 07:30am, I called for Chuck Carver (E&Y partner in charge of CCE audit) @ 404-817-5214,
      Janice Hamilton, his assistant, said that he was out. I gave her the “question” for Mr. Carver: Why, regarding the $301 MM charge, a restatement of prior years’ earnings were not made.
      At 06:30pm, that same day, I received a cal from John Parker, who said that the SEC had approved the previous accounting treatment.
      At 09:36am, the next morning, a person from the SEC called me and said that the SEC had not approved the previous accounting.
      He, also, volunteered that the information I had presented was the stimulant that led to the charge.

      The auditors for both companies were Ernest & Young.
      I had conversations with the partners who were in charge of each audit, and the CFO’s of both CCE and Coca-Cola. Each of the partners suggested I talk with the other partner and the respective CFO’s and nothing was admitted, of course.

      Bottom-line, Coca-Cola, in selling the assets to CCE at stepped-up prices, robbed Peter (CCE) to pay Paul (itself, i.e., Coca-Cola) and then had to support Peter until it (CCE aka Paul) could survive upon its own.
      In 2001, I estimated that it would take 8 to 12 years for CCE to be able to stand upon its own, i.e., without “subsidies” from Coca-Cola.
      Just recently, CCE took a substantial charge regarding its goodwill. The most probably reason for the timing is that CCE had built up enough equity to be able to absorb the charge without reflecting insolvency.

      Enjoy,


      Michael
      dmzfinancl@aol.com

      Sep 01 10:00 PM
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       Jul 06 12:19 AM
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