The Unprecedented President

A Remarkable Time in History; a Desperate Need for Change

President-Elect Obama's Victory Speech . Picture Source

This was a tide that could not be avoided. I honestly think that the Republican plight for the highest seat was a fait accompli. The more this country sank into the tarpits of economic meltdown, the easier it was for Obama to simply reiterate what he had been saying all along: we desperately need to change the way things are being run.

The vote was decisive. There were no hanging chads or recounts this time around. Not only did Obama win the electoral vote, but he also seized the popular vote, and the victory was a landslide. Not only did the Democrats take the executive branch decisively, but made a significant move in the legislative branch, almost producing a filibuster-proof Senate. The American people have spoken very loud and clearly: we desperately need to change the way things are being run.

Personally, and for the record, I’m elated that Obama will be our next president. I believe there are things that we don’t understand, and I believe he was “chosen by a higher power” in some respects to be here for us in these times. I will say however, that the power the Democrats have on Capitol Hill concerns me. I don’t have anything against the way I believe the Democrats will run the country, however this government works best when there’s a balance of ideas; and I don’t see a lot of balance here.

I’m also concerned that people seem to be viewing Obama as some sort of super-hero: as if he has powers to control the outcome of all of this, and that he will save the world (or at least this nation). We know that change is coming; however, the funny thing with change is this. Change guarantees an altered state; that’s as far as the guarantee goes. Although we all hope things will get better—much better—as a result of these changes, there is certainly is no certainty.

With all these concerns in mind, I have great confidence in Obama, and the Democratic Party to pull us out of this mess. I don’t think any American, even the ones that voted for McCain, would disagree with the fact that this country is in a mess of trouble. Every time President Bush stands up to speak, the market tanks a few hundred points. I wish they would just lock him up in his room until the inauguration.

Another thing I think we can all agree with is that we are in this mess because of the way the country is being run. If you want to blame the subprime borrowers for borrowing more than they should, that’s fine. However, why let them do this if the consequence is a collapsed economy? You can blame the banks for lending these people more money than they should, or freezing credit lines when things got scary, but they’re in business like everybody else. Or, you can blame the government for not having enough oversight, but how much oversight is enough? It doesn’t matter who you blame, the bottom line is this: we desperately need to change the way things are being run.

Have you ever felt this way about your compliance program—and did nothing? Have you noticed that your compliance program is not what it should be, but you really don’t feel compelled to improve it?

The problem with compliance is that it’s often viewed as “non-essential.” Notice that I didn’t say, “not required.” We all know it’s required—it’s just not a core part of our business. Unfortunately what happens is that your compliance program takes a backseat to your core operations.

Here’s the problem with that strategy. Compliance may not be important to you; however, it is very important to somebody else, in most cases the government. Now, the government is not the organization to get into a tangle with. You will NEVER have an advantage with the government. A simple case in point for illustrative purposes is property taxes. It doesn’t matter how many loans and liens you have against your property, your state, by way of property taxes, will always take precedence over other debtors.

So, it’s important to recognize the importance of your compliance program. I view this country as a huge organization that hasn’t been paying attention to its compliance program. We just got hit with a huge audit, and guess what? I don’t think we passed. In fact, I think we were slapped with some huge penalties and fines, and now we have to pray and hope that the new President can bail us out.

As I stated earlier, like many Americans I have a lot of faith in our new President. He’s intelligent, resourceful, reassuring, and most importantly he has connected with the great majority of the American public. As the great nation that we are, we will get through this.

But it didn’t need to get to this point, and now a lot of lives have been ruined. Don’t let it get to this point with your company. Do you desperately need to change the way things are being run?

How Much are You Worth Today?

Is Mark to Market Accounting a Good Idea?

So to be clear, mark to market accounting is not some obscure oddity of the past. It would be very valid and relevant for today’s market—given we were in a normal market. This is not a normal market however, and this is where the controversy lies.

Since the whole uproar is somewhat cloudy for some people, let me try to clear it up a little with an example. In simple terms, mark to market means that anything you own or owe (asset or liability) should be valued at what the market would pay for it, as opposed to what you paid for it or some financial model that tries to assess value. In our example, let’s say you bought a house three years ago for a million dollars (bear with me here; it’s a good round number and I’m in California right now). Three years ago, you put 20% down ($200K), and financed the rest ($800K).

Well, 2008 comes along and the value of your house has definitely dropped, but what’s the value now? According to mark to market accounting, the value of your house today is what somebody would pay for it if you had to sell it. Do you think you could get a reasonable price for this house right now? No way! I heard a story the other day, of a man picking one of these million dollar houses for $150K!

For the sake of argument, let’s say you could sell your house today for $500K. Okay, but there’s no way you would do this unless you were desperate. Why? Because although you don’t’ have a crystal ball, you’re pretty confident that this is an extremely unusual market, and that the value of your home will return to normal in the future. However, based on mark to market accounting, if you were required to provide a statement of worth to any stakeholder, you would need to report your home at $500K.

Let’s make matters a little worse. Let’s say your bank receives this statement and panics because you are now $300K underwater: meaning you owe $300K more than the house is technically worth ($800K - $500K). Now let’s say that you have an unusual loan provision that says, “in a situation where the value of your home is less than the amount that is owed, the bank can demand the difference: payable immediately.” Since banks are ultra-conservative by nature, and don’t see things the same way you do, they demand their $300K: due upon receipt.

What would you do? The only option is to sell anything you can, at these market prices, to cover the bill. I know this example is somewhat fanciful, however in large part this is what has just happened to our banks. Their “house” is what’s called a mortgage backed security (MBS), and because of this accounting rule, they are being forced to liquidate huge amounts of assets to cover margin calls.

Do you think this is fair? Now that you know a little more, I’ll leave that for you to decide. However, here’s what I think.

Going after mark to market account and FAS 157 is like going after map makers because hikers are getting lost. There’s nothing inherently wrong with fair value accounting, and I would rather see accounting done this way than any other way. That’s because fair value accounting discloses the “truth” about the current state of the liability or asset. Cost is largely irrelevant to me, people are constantly underpaying or overpaying for things. And financial models and theoretical value pricing is a huge can of worms; we learned our lesson in the ‘80s.

So, I don’t have a problem with fair value accounting, but I do have a problem with irresponsible interpretation of the disclosure. The truth is the truth, but you must be equipped to handle the truth. That goes for investors and creditors alike. So what if the market value of your house today is $500K? If you panic and overreact, you’ll get hurt. If you stay calm and wait, things will get better. It’s all in the interpretation.

So once again, the intelligence that has been bestowed upon human beings is both a blessing and a responsibility. Irresponsible interpretation and irrational behavior is for pack animals. Saving the banks, and the rest of the economy for that matter, comes down to one simple concept—use your head.

Hidden Treasures in your Compliance Efforts

Leveraging Your Compliance Program to Cut Costs

An essential part of your compliance program is your process maps. You must have process maps in place for all your critical processes, as a starting point for demonstrating that you are in control of them. Building simple process maps for strategic reasons is always a good idea, but when it comes to compliance, then need to be a little more robust.

At this point, you should create what Lean Six Sigma practitioners call a “value stream map” of your processes. What a value stream map does, is categorize your process steps into three categories: value added, value-enabling, and non-value added. Value added process steps are anything the customer would pay for, value-enabling process steps are for compliance, and non-value added is everything else.

As I’ve mentioned in previous articles, you must go through this process for your compliance program. Documentation that clearly highlights your value-enabling (compliance) process steps is a clear sign to your auditors that you have a good grip on your compliance concerns. It also gives you a great platform for compliance process improvement.

There is another side-benefit to this activity, in that it can really help you reduce costs. The “Lean” part of Lean Six Sigma is interested in reducing waste, which translates to cutting costs without sacrificing value. By building a value stream map of your processes, you can easily highlight waste which when eliminated, should reduce costs.

You can take it a step further however. Overlay your value stream process map with a cost analysis. This can be done in a number of ways. First of all, each process step should have time metrics attached to them. An estimate is fine, but if you can collect real statistics (mean, standard deviation, etc.) that’s even better. You can then translate time to cost by monetizing, among other things, human resource time spent. Once this is done, you can launch an improvement project with the goal of reducing time: which will translate to cost savings.

The other, more direct use of your value stream process map, is to attach cost directly to the process steps. For instance, let’s say part of your process is to send your report to a duplication house for copies. The estimated (or empirical) cost to make the copies can be directly assigned to the process step. Once this is done, you can launch an improvement project with the direct goal of reducing cost.

Getting more out of less has never been more important than it is today. The reality is however, that you will need to spend money in order to save money, by launching cost reduction projects that have a tangible return on investment. The good news is that great leverage can be found in your already existing compliance program. By minimizing your investment, you can maximize your return. Break open your process maps today, and start looking at where your costs are going.

King of Spam Overthrown

Facebook Settlement puts Canadian on the Throne

Adam Guerbuez of Montreal, is in the Saimin soup with extra spam this month. In April I wrote about the King of Spam, Robert Soloway, who was convicted in a Microsoft case and has to fork over $7.8 million. Well, we have a new seat on the throne!

Our boy Adam, with the help of terrific Facebook lawyers, successfully clobbered his reign with an Obama-style, landslide overthrow seating him firmly as the new King of Spam. The recent landmark spam settlement against him is in the amount of a whopping $873 million! That’s about 3 to 4 times the total revenue Facebook is expected to do this year!

If you read my April issue on Robert, you know how I feel about spammers. I hope this guy is buried so far underground that he never sees the light of day again. Apparently he ran a successful phishing scam where tricked people into giving him their Facebook usernames and passwords. Then, he used a computer program to send out 4 million messages promoting a plethora of products including marijuana and penis enlargement devices.

What a complete idiot.

Facebook will never collect anything close to this amount from this worthless deadbeat, but he’s financially ruined for good: over penis enlargement products. It serves him right. Now I only have to worry about deleting 999 spam messages a day.

Hopefully it sends a strong message out to all the rest of the spammers. Spam in my Saimin is great; I can do without spam in my Inbox.

Hamster on a Piano

Get Some Popcorn and Chill Out!

There's a lot of chaos and confusion going on around us right now, which can not only be terribly distracting, but can manifest itself in some physically harmful ways.

I think this hamster has the right idea. Don't worry too much about what's going in, and have yourself some popcorn! By the time you're done, this horror movie will be over and you can resume life as usual.