2016: The Year of Bond Defaults

[bamawriter]

So a receivable worth nothing and bought with real wealth is an "asset" - at least until written off as a loss? Creative investment is fascinating, but gotta balance those columns. The banking world was just chock full of "assets" early in 2008, and still we are primed to hold to the myth that by definition an asset is something positive.

An asset is neither positive or negative, good or bad, in accounting terms. It either performs or it doesn't.

 

[AM64]

An asset is neither positive or negative, good or bad, in accounting terms. It either performs or it doesn't.

It may well be just that in accounting language. The problem is that when you look up "asset", it's normally defined something like this one: "Something valuable that an entity owns, benefits from, or has use of, in generating income."

Read more: What is an asset? definition and meaning

There's something fraudulent when a "profession" uses a commonly understood word in such context that what is considered by everyone to be positive may just as well be a big negative. It goes well beyond "buyer beware" when a known worthless receivable is termed and perhaps sold as an asset.

 

[GAVol]

An asset is neither positive or negative, good or bad, in accounting terms. It either performs or it doesn't.

This is one of the strangest "debates" I've ever seen.

 

[GAVol]

There's something fraudulent when a "profession" uses a commonly understood word in such context that what is considered by everyone to be positive may just as well be a big negative. It goes well beyond "buyer beware" when a known worthless receivable is termed and perhaps sold as an asset.

The world is full of crappy assets: the house you can't sell; the rapidly depreciating car that you own; the investment you made that's falling like a rock. What the heck else would you like for them to be called?

 

[bamawriter]

It may well be just that in accounting language. The problem is that when you look up "asset", it's normally defined something like this one: "Something valuable that an entity owns, benefits from, or has use of, in generating income."

Read more: What is an asset? definition and meaning

There's something fraudulent when a "profession" uses a commonly understood word in such context that what is considered by everyone to be positive may just as well be a big negative. It goes well beyond "buyer beware" when a known worthless receivable is termed and perhaps sold as an asset.

Well, we all know about the buying and selling of goods. The word "good" denotes a positive. But not all goods are worth buying. Should we call those goods something else so that we don't present them as something worth having?

 

[T-TownVol]

The world is full of crappy assets: the house you can't sell; the rapidly depreciating car that you own; the investment you made that's falling like a rock. What the heck else would you like for them to be called?

Fuzzy Math????

 

[AM64]

The world is full of crappy assets: the house you can't sell; the rapidly depreciating car that you own; the investment you made that's falling like a rock. What the heck else would you like for them to be called?

I don't know, but perhaps the car itself may be considered an asset (current market value) and the money owed for it a debt. That kinda has perspective - seems relatively simple. Also seems remarkably similar to what banks had a problem with - current market value vs original market value and presenting "assets" in a meaningful manner. Accounting doesn't seem as black and white when asset valuation gets fuzzy.

 

[Rasputin_Vol]

An asset is neither positive or negative, good or bad, in accounting terms. It either performs or it doesn't.

And I guess this is where the problem is.

In our current paradigm, debt is defined as an asset. But my position (and the position of others) is that we saw how that worked out in 2008 when you had banks being propped up with a bunch of toxic debt that made their balance sheets look great. At some point, we we will no longer be able to classify debt in the manner we do today. Somehow, it needs to be reflected as a reduction of net equity.

 

[Rasputin_Vol]

It may well be just that in accounting language. The problem is that when you look up "asset", it's normally defined something like this one: "Something valuable that an entity owns, benefits from, or has use of, in generating income."

Read more: What is an asset? definition and meaning

There's something fraudulent when a "profession" uses a commonly understood word in such context that what is considered by everyone to be positive may just as well be a big negative. It goes well beyond "buyer beware" when a known worthless receivable is termed and perhaps sold as an asset.

This...

 

[Rasputin_Vol]

The world is full of crappy assets: the house you can't sell; the rapidly depreciating car that you own; the investment you made that's falling like a rock. What the heck else would you like for them to be called?

GaVol, I completely understand that under today's definition, that bonds/paper debts are considered "assets". I get that. My thing is, should they be considered assets in all circumstances, if at all?

For example, a bank under normal fractional reserve lending rules can create money out of thin air and loan it out to a bunch of toxic subprime borrowers and are able to and can go out and get cash at 0% from the Fed Reserve and buy some Ukrainian or Argentine bonds at over 10%. Under current GAP, these clowns are able to count that as assets. My question is, should it be? You ask what do you call it. I say that any "real" thing of value that you have "in your hands or possession" (even if it is a depreciating item) should be considered an asset. A paper promise to repay at some point in the future is nothing more than a paper promise in the future. Assets - liabilities = net equity and cash... however way you want to classify paper debt, it should not have a positive net effect on net equity. For a bank that prints money out of thin air, it should have 0 effect on net equity. For a person or entity that cannot print their own money, it should be considered to have a negative effect on net equity. For the person or entity that cannot print their own money, they are reducing the net cash and equity that they had in their hands or in their possession (unless they take collateral, then it should be net equity neutral) and they are giving that money away on a promise of repayment in the future.

 

[bamawriter]

Ras,

You not only don't understand what an "asset" is, you don't understand what "net equity" is either.

 

[Rasputin_Vol]

Ras,

You not only don't understand what an "asset" is, you don't understand what "net equity" is either.

Then tell me what it is as it is defined right now.

I believe my understanding of what it is now is the same as yours, but again, I think it needs to be redefined.

 

[bamawriter]

Then tell me what it is as it is defined right now.

I believe my understanding of what it is now is the same as yours, but again, I think it needs to be redefined.

No. You think it should be called something that it isn't. Calling a horse a "microwave" does not redefine what a horse is.

 

[Rasputin_Vol]

No. You think it should be called something that it isn't. Calling a horse a "microwave" does not redefine what a horse is.

OK, I see you want to be ridiculous.

All I am saying is that the way we describe assets right now has gives us an erroneous value of net equity, which was highlighted in 2008 and will be again highlighted when these bonds and derivatives burst on us again.

 

[bamawriter]

OK, I see you want to be ridiculous.

All I am saying is that the way we describe assets right now has gives us an erroneous value of net equity, which was highlighted in 2008 and will be again highlighted when these bonds and derivatives burst on us again.

No. All that shows is that some people, even very smart people, can be duped as to the value of an asset. That's it. Nothing more, nothing less.

 

[Rasputin_Vol]

No. All that shows is that some people, even very smart people, can be duped as to the value of an asset. That's it. Nothing more, nothing less.

I have 100 mega millions lottery tickets for this Tuesday night, a Honda Civic that I'm upside down on and still paying on, and a handful of European bonds that are paying out 0%. That's all to my name.

You still want to argue that I have assets?

 

[tumscalcium]

I have 100 mega millions lottery tickets for this Tuesday night, a Honda Civic that I'm upside down on and still paying on, and a handful of European bonds that are paying out 0%. That's all to my name.

You still want to argue that I have assets?

I don't believe you don't have any money tied up with Russia.

 

[bamawriter]

I have 100 mega millions lottery tickets for this Tuesday night, a Honda Civic that I'm upside down on and still paying on, and a handful of European bonds that are paying out 0%. That's all to my name.

You still want to argue that I have assets?

There is no argument to be made. You have assets. They are unlikely to perform in any meaningful way, but they are still assets.

But if it makes you feel better: you bought a bunch of horses that have magically turned into microwaves.

 

[Rasputin_Vol]

There is no argument to be made. You have assets. They are unlikely to perform in any meaningful way, but they are still assets.

Outside of the car that is in my physical possession (but don't own the title), all I have is paper that has not performed. So call it just that... paper.

And speaking of that car title... the bank owns the car title. They may as well call it an under-performing asset, also, because I might get pissed and just stop paying on it and dare them to come and get it, I might burn it up in Lewis County or wrap it around a tree or just let my baby momma drive it or send it to ISIS in a container ship.

The question is "should" that be considered an asset... not "is" that considered an asset.

 

[bamawriter]

Outside of the car that is in my physical possession (but don't own the title), all I have is paper that has not performed. So call it just that... paper.

And speaking of that car title... the bank owns the car title. They may as well call it an under-performing asset, also, because I might get pissed and just stop paying on it and dare them to come and get it, I might burn it up in Lewis County or wrap it around a tree or just let my baby momma drive it or send it to ISIS in a container ship.

The question is "should" that be considered an asset... not "is" that considered an asset.

If one of those hundred lottery tickets hits the jackpot, would you consider it an asset? It's still just paper, but it entitles you to a few hundred million.

Honestly, at this point you aren't even quibbling with accounting principles. You are quibbling with the English language.

 

[Rasputin_Vol]

If one of those hundred lottery tickets hits the jackpot, would you consider it an asset? It's still just paper, but it entitles you to a few hundred million.

That paper is worth nothing until is pays, and it should only be realized at the moment that paper obligation has been executed. Anything more than that is just speculating/gambling/hoping.

Now having said that, using the conventional definition, I would suppose that even a bond with negative rate is an asset, is that correct bamawriter? If someone walked up to you and said they have 100 mega millions tix for Tuesday night or $100 bond at a negative rate over 10 years, which would you choose? Better yet, what If I offered you $100 memg millions tix or the title to my upside down Honda Civic?

Honestly, at this point you aren't even quibbling with accounting principles. You are quibbling with the English language.

Again, that has been my entire point. At some point, we will need to redefine what the word "asset" truly means. The way it is described in the assets - liabilities = net equity and cash equation is severely flawed because it can erroneously make a balance sheet look healthier than is actually is. As you all would like to call them "accounts payable" and "accounts receivable" are expected future debits and credits, with key emphasis on "expected". They should just be called "future cash flows".

 

[Rasputin_Vol]

Meanwhile... :blink:

Don’t Worry, Deutsche Bank Only Down 16% (not 21%)

The ECB will not allow a crash. That I can assure you. So please ignore the following Tweet.


Follow
Morris Cabrioli @insidegame
Deutsche Bank down 21% in pre-market. It's time to update the Deutsche-Lehman chart.
1:17 AM - 24 Jun 2016
107 107 Retweets 84 84 likes

Uhh ohh...

 

[bamawriter]

Again, that has been my entire point. At some point, we will need to redefine what the word "asset" truly means. The way it is described in the assets - liabilities = net equity and cash equation is severely flawed because it can erroneously make a balance sheet look healthier than is actually is. As you all would like to call them "accounts payable" and "accounts receivable" are expected future debits and credits, with key emphasis on "expected". They should just be called "future cash flows".

That's the second time you've ended the net equity equation with "and cash". I'm not sure if you are accidently confusing equity with liquidity (if you are you are still way off), but cash is an asset. So you don't get "equity and cash", as the cash is already included.

 

[AM64]

If one of those hundred lottery tickets hits the jackpot, would you consider it an asset? It's still just paper, but it entitles you to a few hundred million.

Honestly, at this point you aren't even quibbling with accounting principles. You are quibbling with the English language.

According to an infamous guy named Bill, that all depends on the definition. You see the point is that if some financial institution bundles a bunch of stuff together to sell and it's so complex that even most people in the financial world can't unravel it, then what chance do most people have to understand they are investing in debts not assets if we aren't all working to the same meaning of a very common word?

 

[Rasputin_Vol]

That's the second time you've ended the net equity equation with "and cash". I'm not sure if you are accidently confusing equity with liquidity (if you are you are still way off), but cash is an asset. So you don't get "equity and cash", as the cash is already included.

You're right on that. I've seen it a few times in the past few days where it was called that, but it is just net equity. I can't seem to find it right off where I saw equity and cash on the same side of the balance sheet, but it was a new definition than what I had seen since I was in econ 20 years ago... I just assumed it was a change made recently in how the balance sheet was calculated.

My bad on that.