tag:blogger.com,1999:blog-5615955092910060134.post7023074313188147856..comments2023-04-25T10:32:04.910-07:00Comments on Adverse Selection: My Economic Agenda for President-Elect ObamaJengahttp://www.blogger.com/profile/05154364198602107346noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5615955092910060134.post-74975607122949327502008-11-14T13:27:00.000-08:002008-11-14T13:27:00.000-08:00You are a gentleman and a scholar.You are a gentleman and a scholar.Natehttps://www.blogger.com/profile/03712694432717680051noreply@blogger.comtag:blogger.com,1999:blog-5615955092910060134.post-11764368289433274832008-11-12T21:29:00.000-08:002008-11-12T21:29:00.000-08:00I believe we're making the same point. You're sug...I believe we're making the same point. You're suggesting principles contain soft language and that such language will not stop corporations from acting opportunistically because it can't be enforced. Clearly businesses will try and stretch the limits. The argument becomes one of degrees. Will they do so any less with more principles? If the system is designed around ambiguous language, as you suggest, then I don't expect executives to behave altruistically and I would submit such a system is doomed to failure. But you're simply arguing against the other extreme. Either way, what we're both arguing for (me directly, you indirectly)is a system designed around a more optimal mix of principles combined with rules.<BR/><BR/>In reality, the example you use from my post would not be the only comment holding up the standard. But here's my point (using the same example); the international standards further clarify accounting of leases in 6 pronouncements and one interpretation. The U.S., on the other hand (remember they've already laid out four rules) has decided to clarify the matter through 20 statements, 9 interpretations, 10 technical bulletins, and 39 abstracts (I looked it up). That's excessive.<BR/><BR/>In this case, its the department accountants that will/should (or the CFO) dictate the proper accounting treatment, not attorneys, and they will want to keep it out of court due to certain costs as well as headline/reputation risk. If it does go to court because the company gets sued, then I agree with you, the words are soft. But if it gets to that point, the company has already lost, in my eyes.<BR/><BR/>I believe you've correctly identified the major disadvantage of principle-based systems. The other one is the issue with comparing apples to oranges. How is an investor supposed to know the difference when one company chooses a different accounting treatment than a competitor may use? Again, there need to be rules, but I think we have to many under our current system. And although I can't prove it, I'm going to guess we are not extracting any proportional benefit (which I would express in terms of lawsuits per some relative denominator) from such rules compared to other developed nations.Jengahttps://www.blogger.com/profile/05154364198602107346noreply@blogger.comtag:blogger.com,1999:blog-5615955092910060134.post-46636845488705386852008-11-12T15:58:00.000-08:002008-11-12T15:58:00.000-08:00I disagree with this statement in your #1:"Broad p...I disagree with this statement in your #1:<BR/><BR/>"Broad principles avoid the pitfall of creating specific requirements that allow contracts to manipulate their intent."<BR/><BR/>Take the broad principal that you outline: "leases must be booked as capital leases if it transfers substantially all the risks and rewards incident to ownership."<BR/><BR/>Any attorney worth their salt can go to town on that statement to manipulate the intent -- plenty of the words are squishy, especially "substantially all" but also "transfer" and "incident to."<BR/><BR/>I'm not disagreeing with the overall statement, just your characterization of its potential benefit.Natehttps://www.blogger.com/profile/03712694432717680051noreply@blogger.comtag:blogger.com,1999:blog-5615955092910060134.post-7002162982441820342008-11-11T13:33:00.000-08:002008-11-11T13:33:00.000-08:00Some good ideas here. I would add to your #3 that...Some good ideas here. I would add to your #3 that our emphasis in infrastructure should be green. Not just because it "helps the planet." While that's nice, green technology it is one of the lowest hanging fruits in terms of innovation and entrepreneurship. A major growth industry internationally, at least from my point of view.<BR/><BR/>Speaking of entrepreneurship, I thought you'd get a kick out of what Mark Cuban had to say about the impact of tax rates on corporate tax rates.<BR/><BR/>http://blogmaverick.com/2008/10/23/the-cure-to-our-economic-problems/Jameshttps://www.blogger.com/profile/17991358855133106250noreply@blogger.com