Kula Consulting Blog

Does anyone remember the old banking maxim: “If you owe the bank a little bit, the bank owns you — but, if you owe the bank a lot, you own the bank?”

Looks like this is a truism, because “We the People” now own the banks, and the insurance companies, and the investment banks, too. What a week! Up until a few days ago, we thought the $85 billion bail-out of AIG was news.

Now the US taxpayer is the investor of last resort for ALL bad loans in America (the world?). Plus, I love the serious deliberation and fact checking and Congressional hearings that dig deep into the reasons for our alleged imminent financial collapse. Not! (As my kids used to say.)

I’m stunned that we had less than two weeks to come up with a solution to a financial mess that, we were told by our government up until September 14th, was under control.

Don’t panic, and the market will work things out… Either our government is clueless or deliberately deceiving the public. Plus, did you know that we are still not in the middle of a recession? Unemployment in California is currently 7.7%; we have a 50-year inventory or homes for sale, stock market values are down 20% from a year ago and, it seems, only Google and Oracle are making money.

But, we are not yet in a recession. Seems to me the $700 billion bail-out is short about $1 trillion, or two.

Why don’t we ever see the bubbles coming? We have had housing booms, stock market booms and Ponzi scheme booms many times in the past, but don’t seem to learn from them.

I remember most of these booms and the resulting busts very well. During the Dot Com days, many recruiters took stock in lieu of cash for placement fees (my old firm made a million bucks on one deal that way), and there were 1000 CFO openings in the Valley in the late 1990s.

I vividly recall meeting with a new Internet start-up CEO (20 years old with blue hair), who told me he needed a CFO who would be able to find a good office lease in a building that was “dog friendly,” and help him move the company out of his Mom’s garage.

He had raised $20 million for some crazy idea, but it was an Internet idea. The money was gone in a year and so was the blue hair. Not that there is anything wrong with blue hair. My mother has blue hair, and it’s very attractive.

I bought a rental house in mid-2003 in Santa Cruz to rent to a family member. When I applied for a mortgage on the property, I didn’t have to present any financial information, not even a tax return or a bank statement to get the loan. Two years later I put the home on the market and received five offers the first day on the listing. We had three subsequent increased offers. I couldn’t believe the price being offered for a 1300 square foot house with disclosed things that needed fixing. I felt bad, but took the highest offer — for a 67% gain on the purchase price in two years. The buyer put zero cash down! Insane! But, that may be what has happened in every segment of our financial system.

No rules, no oversight, and insanity. What were we thinking, and are we thinking yet?

As I write this the final deal on the $700 billion bail out of our financial institutions has not been completed or announced. Therefore I don’t know if it’s a good deal for the USA or not. I don’t even know if we need to do anything. It’s very hard to trust that our government even knows what the real problems are, let alone that it might actually know how to solve them.

I do know that I’m very upset that everything our government does is in a crisis mode. I try not to run my small business that way, and don’t know any of my clients that run their businesses that way. Don’t even get me started on how the State of California is run!

My question to anyone who actually reads this rant is: Shouldn’t the accounting profession be taking a share of the blame for the lack of real transparency and usefulness of financial information? At least in the reporting and accounting of banks and other financial institutions? What does a poorly run financial institution need to do to get a qualified opinion from its auditors?

Let me know what YOU think!