David Kirkpatrick

March 16, 2009

“Paper” — a work of short fiction, redux

Filed under: Arts, Business, Media — Tags: , , , , , — David Kirkpatrick @ 1:26 pm

I first ran this short-short of mine on the blog last January (1/30/08 to be exact) in its very earliest days.

With the financial crisis in full boil, crazy news from the business world (AIG anyone?) and a recession that very possibly could morph into a full-blown depression, I think this cautionary tale is still appropriate.

Following is a piece of short fiction. I originally posted this to my website davidkirkpatrick.com January 17, 2002.

Here’s how I introduced the story then:

“Paper” was written after the stumble, but before the fall of the new economy. Its theme fits nicely with today’s cautionary stock market news, headlined by Enron’s troubles.

What is interesting is how this short bit of dialog was written to reflect the tech crash and how many people ended up overextended with paper, rather than liquid, assets. In some ways it’s even more apropos today with the ongoing mortgage crisis.

Without further adieu, the story …

***

Paper

By David Kirkpatrick

“You making any money on the market?” A. asked.

“Nothing spectacular. I’m in for the long haul. I make it a personal rule to not even take a peek anytime the Dow drops over 200 points. How about yourself?”

“Took an absolute bath at the end of last week, but it did get me to move a large chunk out of techs. I’m starting to see the value in the long haul myself,” said A. He waved his nearly empty scotch glass in the bartender’s direction and received a nod in return.

“Techs are wild. The best story I know from last week’s little correction comes from a tech stock. An acquaintance of mine works for a B2B software firm. Not a dotcom, but still overvalued. When they IPOed last year, her stake in the company made her an instant millionaire, one point or two point something or other. Fourth quarter they announced a growth rate way over the projections and she doubled her wealth overnight.

“Around the same time the company moved her out to the valley to the main headquarters. She went to California and her equity finally reached about six million with all signs pointing to doubling within the year.

“And I can see why she would take all this information and feel good about it–everything was simply going up and up. Her paper, the earnings, everything….”

“I see something bad coming here,” said A.

 ”Well, fully expecting a paper worth of twelve million dollars in a year’s time, she went out and bought a US five million dollar house in San Francisco. I have no idea how she was able to finance this thing holding a paper wealth of about six and not that long of a history with a fat salary.

“At any rate she bought the house and took on a massive monthly debt service on the thing.”

“Wow,” A. said as he started on his new scotch.

“Even buying the place with the twelve in hand looks like a bad idea to me, but five million in real estate with a paper worth of six million is simply begging for some degree of pain.

“After last week I called her because I knew that she took a real serious hit.”

“How serious?” A. asked.

“As of this morning, two point three. Up slightly from last Friday. The problem isn’t that the stock is going to be worthless, because it’s not. The business model is solid and they have a good product. The pain is in the fact that the trading has become realistic and will probably remain so. She’ll get a slow climb back toward that five or six million dollar mark, but twelve is naturally out of the question…”

“And she’s still holding the note with all that goddam debt service on it.” A commented.

“Precisely. That’s the tricky part of this market. When you start going too fast, it just gets too easy to spiral out of control into a really painful crash and burn.

“So before you get too upset about whatever kind of bath you might have taken, remember that it could have been worse. Much worse.”


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January 8, 2009

10 financial frauds

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 5:15 pm

Interesting article, and yes, Enron comes in at number two.

From the link, here’s the mother of all financial fraud:

1. Charles Ponzi was one of the biggest swindlers in US history, and gave his name to the Ponzi “pyramid” scheme allegedly used by Bernard Madoff on Wall Street. Orchestrated after the First World War, Ponzi’s fraud centred on “international postal reply coupons”, designed to allow mail to be sent internationally. By acquiring these coupons abroad and exchanging them for higher value postage stamps in the US (essentially a form of arbitrage), Ponzi was able to make around a 400 per cent profit. Though this was not illegal, Ponzi advertised for investors to his scheme, promising them fantastic returns. He paid handsome windfalls to a handful of investors, which brought people flocking to his newly-formed Securities Exchange Company [SEC]. People mortgaged their homes and poured their savings into the company, which was accumulating colossal liabilities. Existing investors were paid off with the money of new investors. At the peak of his fraudulent scheme in 1920, Ponzi was making around $250,000 per day, an enormous sum for the time. The authorities slowly came to realise that, in order to cover all the investments made in the SEC, there would have to be 160,000,000 postal coupons in circulation. There were in reality only 27,000. Ponzi was indicted on 86 counts of mail fraud and sentenced to five years in prison in 1920.

I chose this one because Ponzi and Ponzi Schemes are all over the news in regards to the Madoff business.  Figured anyone who wasn’t familiar with the details would enjoy the history.

March 31, 2008

New FASB rule on derivatives

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 12:31 am

Little heard about before recently, and still pretty arcane, derivatives reporting must now meet a Financial Accounting Standards Board disclosure rule.

From the CFO.com link:

Under the new rule, issuers must disclose the fair values of derivatives they use, as well as their gains and losses from the instruments, in tables accompanying their financial statements. Perhaps with a nod to the current credit crunch — FASB was in the last stages of hatching the standard as the subprime crisis deepened — the standard requires companies to reveal features of their derivatives that are related to credit risk.

To be sure, the standard changes nothing about the accounting for derivatives. But it does make the often-cloudy reporting of them much more transparent to the users of financial statements, Mulford thinks. “With these tables, derivatives can’t be hidden from view in a way they were on, say, Enron’s balance sheet and income statement,” he told CFO.com. “Investors will be better able to assess the contribution of derivatives to earnings and financial risk, and in the process, they’ll be better able to judge earnings sustainability.”

The new standard requires employers to reveal where they put the results of their derivatives investments on their financial statements and spell out how much they are; how derivatives are accounted for; and how derivatives affect their balance sheet, income statement, and future cash flows. (While 161 requires companies to disclose where they report derivatives’ effects on their income statements and balance sheets, it doesn’t require such reporting in cash-flow statements. FASB plans to address disclosures of derivatives’ location on cash-flow statements in the context of its ongoing project on financial-statement presentation.)

January 30, 2008

“Paper” — a work of short fiction

Filed under: Arts, Media — Tags: , , — David Kirkpatrick @ 8:00 am

Following is a piece of short fiction. I originally posted this to my website davidkirkpatrick.com January 17, 2002.

Here’s how I introduced the story then:

“Paper” was written after the stumble, but before the fall of the new economy. Its theme fits nicely with today’s cautionary stock market news, headlined by Enron’s troubles.

What is interesting is how this short bit of dialog was written to reflect the tech crash and how many people ended up overextended with paper, rather than liquid, assets. In some ways it’s even more apropos today with the ongoing mortgage crisis.

Without further adieu, the story …

***

Paper

By David Kirkpatrick

“You making any money on the market?” A. asked.

“Nothing spectacular. I’m in for the long haul. I make it a personal rule to not even take a peek anytime the Dow drops over 200 points. How about yourself?”

“Took an absolute bath at the end of last week, but it did get me to move a large chunk out of techs. I’m starting to see the value in the long haul myself,” said A. He waved his nearly empty scotch glass in the bartender’s direction and received a nod in return.

“Techs are wild. The best story I know from last week’s little correction comes from a tech stock. An acquaintance of mine works for a B2B software firm. Not a dotcom, but still overvalued. When they IPOed last year, her stake in the company made her an instant millionaire, one point or two point something or other. Fourth quarter they announced a growth rate way over the projections and she doubled her wealth overnight.

“Around the same time the company moved her out to the valley to the main headquarters. She went to California and her equity finally reached about six million with all signs pointing to doubling within the year.

“And I can see why she would take all this information and feel good about it–everything was simply going up and up. Her paper, the earnings, everything….”

“I see something bad coming here,” said A.

(more…)

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