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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: BirdDog who wrote (31991)	3/11/2002 11:15:13 AM
From: Chris	Read Replies (1) \| Respond to of 52237

thanks for opinion.. sox not acting well. need sox to do better for naz to go up.

To: BirdDog who wrote (31991)	3/11/2002 3:18:04 PM
From: stockman_scott	Respond to of 52237

Fixing Corporate Disclosure The Washington Post Sunday, March 10, 2002; Page B08 THE MOST troubling revelation from the Enron affair is that corporate accounts can be meaningless. Companies can conceal their activities in special partnerships that don't get reported to investors, leaving investors no way to assess risks. The Financial Accounting Standards Board, a private rule-writing body, is laboring to close some of these partnership loopholes and may issue a new draft regulation later this month. The signs are that the rule could fall short of what is needed. At present, a company doesn't have to report a partnership if 3 percent of the partnership's capital is provided by an outside investor. A company can set up a partnership, pump in $97 million of its own cash, and then wheel and deal in secret, so long as somebody else has put up $3 million. In theory, the $3 million is supposed to be equity capital: The idea is that the third party will be the first to lose if the investments go wrong, and so will object to reckless investments. But this check against secretive risk-taking has had little effect, because outside equity investors have in practice been protected from the usual risks of ownership by tricks of financial engineering. The board's new rule would strengthen the checks. Rather than having to put up a mere 3 percent of a partnership's capital, third-party investors would have to provide at least 10 percent. Moreover, the tricks that currently shield them from losses would be more explicitly forbidden. A company could still set up a partnership, lend it $90 million and persuade somebody else to put in $10 million. But if the partnership lost money, that somebody else would be on the hook, and the sponsoring company's $90 million would be safe. Unfortunately, the standards board reckons that this means the sponsor's shareholders don't need to be told about the partnership. This raises two immediate questions. What is the harm in disclosing the partnerships, even if the Financial Accounting Standards Board is right that the shareholders' capital is safe? Second, how safe is it, really? The partnership may hold volatile instruments that lose more than 10 percent of their value, with the result that all its equity is wiped out and the loan cannot be repaid in full. The board's experts acknowledge this danger and urge that partnerships with risky investments have a thicker equity cushion. But urging companies to be sensible has not worked. The board should spell out exactly how much extra outside equity is required if risky partnerships are going to be concealed from shareholders. A further problem: The Financial Accounting Standards Board has yet to decide how its new rule should treat complex partnerships set up jointly by several firms to borrow money. These partnerships take in promises of future payments -- for example, rent payments -- and borrow against those promises; then they pass the borrowed money back to the sponsoring companies. This is a way for companies to cleanse their balance sheets of payment promises and report hard cash instead; it disguises the uncertain nature of future receipts and the fact that the cash has been borrowed. The disguise is bad for shareholders. But the banks that earn large fees for setting up these partnerships are anxious to preserve it. The Financial Accounting Standards Board is due to discuss its new rule on March 13, and may circulate a draft soon afterward. A period of comment will ensue, which is when the battle begins. In the past, lobbyists have descended upon draft rules, sometimes enlisting congressional allies to blur disclosure. This time it is essential that the friends of disclosure -- particularly the institutional investors who hold a large proportion of corporate stock -- fight equally hard. Stock markets can allocate capital efficiently only if investors have all the information they need to understand companies. Without proper disclosure, capitalism can't work properly. © 2002 The Washington Post Company