SOMETIMES it seems as if our lives are dominated by
financial crises and failed reforms. But how much do Americans even understand
about finance? Few of us can do basic accounting and fewer still know what a
balance sheet is. In fact, when was the last time you balanced your checkbook? If
we are going to get to the point where we can have a serious debate about
financial accountability, we first need to learn some essentials.
The German economic thinker Max Weber believed that for
capitalism to work, average people needed to know how to do double-entry
bookkeeping. This is not simply because this type of accounting makes it
possible to calculate profit and capital by balancing debits and credits in
parallel columns; it is also because good books are “balanced” in a moral
sense. They are the very source of accountability, a word that in fact derives
its origin from the word “accounting.”
If we want to know how to make your own finances and
companies more accountable, we would do well to study the Dutch. In 1602, they
invented modern capitalism with the foundation of the first publicly traded
company — the Dutch East India Company — and the first official stock market in
Amsterdam. But it was through an older and well-maintained culture of
accountability that they kept these institutions stable for a century. The
spread of double-entry accounting to the Netherlands during the early 1500s
made the country the center of accounting education, world trade and early
capitalism. Well-accounted-for provincial tax returns allowed the Dutch to
float bonds at dependable 4 percent interest rates. The Dutch trusted their
managers to know how to keep good books and make regular interest payments,
while paying off state debt.
Over the past half century, people have stopped learning
double-entry bookkeeping — so much so that few know what it means — leaving it
instead to specialists and computerized banking. If we want stable, sustainable
capitalism, a good place to start would be to make double-entry accounting and
basic finance part of the curriculum in high school, as they were in
Renaissance Florence and Amsterdam. I teach a summer business program for high
school business students. Many of them know nothing about bookkeeping let alone
how to manage cash.
A population well-versed in double-entry accounting will not
immediately solve our complex financial problems, but it would allow average
citizens to understand the nuts and bolts of finance: balance sheets, mortgage
interest, depreciation and long-term risk. It would also give them a clearer
sense of what financial accountability really means and of how to ask for and
assess audits. The explosion of data-driven journalism should also include a
subset of reporters with training in accounting so that they can do a better
job of explaining its central role in our economy and financial crises.
Without a society trained in accountability, one thing is
certain: There will be more reckonings to come. So balance your checkbook,
understand your debt, and above all else kiss an accountant.
A
special thank you to Jacob Soll, a professor of history and accounting at the
University of Southern California.
JACK
ASS OF THE MONTH – A tough one this month, Donald Sterling. What a
putz.
SPORTS
TELEVISION -- Johnny Weir and Tara Lipinski are bringing their sense
of style to the Kentucky Derby. NBC said last week the announcing team will
comment on the fashion and party scene at horse racing's signature event next
week. Their addition reflects how the Derby has become one of the most
female-friendly televised sports events of the year. Last year's race was the
second most-watched Kentucky Derby in 25 years; 51 percent of the viewers were
women. Weir and Lipinski were rookie announcers covering figure skating at the
Olympics. ... They subsequently commented on fashion coverage at the Academy
Awards for 'Access Hollywood.' The Derby will also mark the NBC debut of Josh
Elliott.
HAS
GOLDMAN LOST ITS LUSTER? - Goldman Sachs remained a partnership
long after its rivals went public. When it finally took the plunge, in 1999, it
revealed almost absurd levels of profitability: returns on equity of more than
40 percent in some years ... A decade later, under chief executive Lloyd
Blankfein, Goldman avoided the fate of Lehman Brothers, Merrill Lynch and Bear
Stearns. ... Surviving the crisis and then immediately thriving was the
crowning glory of an investment bank that has inspired more respect, envy, fear
and loathing than any other. But over the past few quarters something strange
has happened: Goldman is starting to look unexceptional.
Reporting first-quarter results last week, chief financial
officer Harvey Schwartz was able to boast of a 'pretty dominant performance in
investment banking,' a 'quite solid performance in fixed income; and a return
on equity that was 'the highest in our peer group'. All true. But this is
hardly setting investors' hearts racing or leaving rivals quaking in their
boots."
A FORD
IN YOUR FUTURE - After a more than seven-year run, Ford Chief
Executive Alan Mulally will leave the auto maker earlier than expected, we
report. His successor will be Mark Fields, a Ford veteran who survived
management turmoil in the years before Mr. Mulally's arrival. Our story
examines the impressive progress that took place at Ford under Mr. Mulally's
tenure, and we report on the role Mr. Fields has played in the company over the
past few years. We note that he is expected to step easily into his new
position. One person familiar with the matter referred to him as the acting
CEO, adding that Mr. Mulally has been playing an increasingly "ceremonial
role." Meanwhile, we have an interview with Mr. Mulally—conducted before
news broke about his successor—in which he talks about Mr. Fields, business in
China and the new F-150 pickup truck.
COLLEGE
CHRONICLES - As
concerns over tuition costs mount, the U.S. government officials are trying to
rein in increasingly popular federal programs that forgive some student debt.
At issue are two federal-loan repayment plans created by Congress, originally
to help students with big debt loads and to promote work in lower-paying jobs
outside the private sector. Under the faster-growing of the two plans, the
unpaid balances for those working in the public sector or for nonprofits are
forgiven after 10 years. The move to rein in the programs, we note, reflects
concerns in the administration, not just about cost to the government but about
the risk that promising huge debt forgiveness could make borrowers and schools
less disciplined. For instance, colleges might charge more than they would
otherwise, which would only lead students to borrow more.
The U.S. Supreme Court on Tuesday ruled 6-2 that states may
end racial preferences without violating the Constitution, leaving in place the
outcome of a 2006 Michigan ballot initiative where voters backed an end to
so-called affirmative action at state schools. Our story examines the opinions
of the justices, reports on the reactions from civil-rights advocates and other
activists and provides background on the long-lasting debate over preferential
treatment for minorities. While the ruling upholds the right of voters in
states to bar racial preferences at public universities, justices are far from
consensus on when affirmative action may be allowed—an issue that will probably
return to the court in the coming years. For more information on the decision,
here's a handy explainer.
CHINA
KEEPS SLOWING - A Chinese manufacturing gauge signaled a
fourth month of contraction, indicating that government efforts to counter an
economic slowdown have had only a limited impact. The preliminary Purchasing
Managers' Index from HSBC Holdings Plc and Markit Economics was 48.3 in April,
matching the median estimate ... The reading rose from March's final figure of
48 while remaining below the expansion-contraction dividing line of 50. The
yuan touched the lowest level since 2012 after the report, which followed data
last week showing China's expansion moderated to the slowest pace in six
quarters.
DOLE'S
CRYSTAL BALL - The World War II veteran clearly remains
sharp in his 10th decade, working hard to move around but still reeling off his
patented one-liners and dispensing Sunday show-style political wisdom for the
election year. "He expressed dismay at the failure of Congress to pass
immigration reform to and said the next GOP presidential nominee must be
'somebody with a program' ... 'We can't be against everything,' the former
senator said in a brief interview ... Dole said Republicans have a '50-50' shot
at taking the Senate this year and singled out two members of Congress - former
vice presidential nominee Paul Ryan and House Majority Leader Eric Cantor - as
rare lawmakers offering constructive agendas."
BIRTHDAYS
THIS WEEK – Birthday wishes and thoughts this week to: Judy Collins
(75), Penelope Cruz (40), Chris Krich …The Coach, Harper Lee (88), Kosuke
Nakamura …famous International Student, Jerry Seinfeld (60), Frankie Valli
(80), Brian Williams (55).
LIVING
HISTORY - "Pope Francis declares John Paul II and John XXIII
as new saints" in front of a crowd of hundreds of thousands - BBC/Vatican
City : "He praised his two predecessors as 'men of courage' at the Vatican
service, the first time in history that two popes have been canonised at the
same time. The Mass was attended by Pope Emeritus Benedict, who quit as pope
last year, and roughly 100 foreign delegations. ... Francis is trying to
balance the conservative legacy of John Paul with the reforming zeal of John.
... The ancient rite of canonisation unfolded under grey skies in a packed St
Peter's Square. ... [O]rnate, silver containers holding holy relics of new
saints were shown: a trace of blood from John Paul II, and sliver of skin taken
from the body of John XXlll. ...
"At the climax of the service, Pope Francis said in
Latin: 'We declare and define Blessed John XXIII and John Paul II to be saints
and we enrol them among the saints, decreeing that they are to be venerated as
such by the whole Church.' Relics of each man -- a container of blood from John
Paul and a piece of skin from John -- were placed near the altar.
THE
SWAMI’S WEEK TOP PICKS –
DOWN THE
STRETCH THEY COME – The Swami’s Kentucky Derby picks:
Win – California Chrome, beat those east coast snobs; early
odds 2:1
Place – Hoppertunity, Bob Baffert’s long shot becomes a
favorite; early odds 10:1
Show – Candy Boy, a ULV connection will surprise; early odds
20:1
SCIAC
GAME OF THE WEEK – SCIAC Golf Championships: (1) La Verne Leopards,
(2) Claremont McKenna Republicans, (3). Redlands Bulldogs.
2014 Season
to date (25-27), ouch!
Market
Week
- As investors await another meeting of Fed policymakers this week, the markets
continue their longest period of indecisiveness in 7-1/2 years. The S&P 500
has alternated between weekly gains and losses for eight consecutive weeks, the
first time that’s occurred since September 2006. This is a huge week for U.S.
economic data and events, including GDP and the employment cost index ... for
Q1, lots of monthly indicators for March and April and an FOMC meeting. We
expect the growth data to signal reacceleration in Q2 after exaggerated
weakness in Q1. ... We estimate real GDP rose at just a 0.9% annual rate in Q1,
down from a 2.6% Q4-to-Q4 pace in 2013. ... Most of the sharp slowing appears
to be due to the harsher-than-usual winter weather and other sources of
volatility ... We continue to forecast a 3.5% pace for real GDP in Q2, followed
by 3.3% in Q3 and Q4.
DRIVING THE WEEK - President Obama continues his Asia trip in the
Philippines ... House Financial Services holds a hearing on Tuesday at 10:00
a.m. with SEC Chair Mary Jo White on the agency's rule making agenda ... House
Financial Services subcommittee on Tuesday will hold a business meeting to
issues CFPB subpoenas ... Senate Banking on Tuesday will markup the
Johnson-Crapo housing reform bill and vote on Fed nominations including Stanley
Fischer to be vice chair ... Tons of big economic data including Case-Shiller
home prices at 9:00 a.m. Tuesday which are excepted to rise 0.7% ... Consumer
confidence at 10:00 a.m. Tuesday expected to rise trivially to 83.2 from 83 ...
ADP employment Wednesday at 8:15 a.m. expected to rise 206K ...
Employment cost index at 8:30 a.m. Wednesday
excepted to rise 0.5% ... Q1 GDP on Wednesday at 8:30 a.m. expected to increase
just 1.2% ... FOMC announcement at 2:00 p.m. Wednesday expected to including
another $10B taper to $45B per month. There is no presser ... Personal income
and spending at 8:30 a.m. Thursday expected to rise 0.4% and 0.6%, respectively
... ISM manufacturing at 10:00 a.m. Thursday expected to rise to 54.3 from 53.7
... April jobs report at 8:30 a.m. Friday expected to show a gain of 215K with
the unemployment rate dipping from 6.7% to 6.6% ... Twitter releases Q1
earnings on Tuesday.
Next
week: Shrinkage and movies.
Until Next Monday, Adios.
Claremont, CA
April 28, 2014
#V-2, 211
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