FFDIC writes:
580? Bring it on!
FFDIC | 03.26.08 - 6:57 pm | #

remsem writes:
as an aside, ask any mortgage bank if it reserved against any sort of potential loss, let alone repurchases. i know the answer would be a resounding NO.
remsem | 03.26.08 - 6:58 pm | #

Gary writes:
"I have to say I have, really, no desire to read a 580-page report on this subject."

The lady doth protest too much!
Gary | 03.26.08 - 6:59 pm | #

Alec writes:
Sebastian finally can explain why his NEW pick went wrong; they wuz crooks.

Hoocoodanode?
Alec | 03.26.08 - 7:06 pm | #

GD writes:
Footnote 75 cites to the Mortgage Lender Implode O'Meter :) Where's the lover for CR?
GD | 03.26.08 - 7:09 pm | #

GD writes:
Correction-"Where's the love for CR?"
GD | 03.26.08 - 7:10 pm | #

Rob Dawg writes:
The 580-page report...

Tanta, did you have a hand in this? ;-)

Seriously, why in the world would KPMG even imagine they were replaceable in this situation? Replacing your accounting firm because they objected to questionable accounting practices is market suicide. It is KPMG that is the greater villain in this piece for such a lame excuse.
Rob Dawg | Homepage | 03.26.08 - 7:11 pm | #

Tanta writes:
The lady doth protest too much!

I wanted to make sure that none of my loyal readers thinks I'm subtly hinting that I'd like to find this in my email box.

FFDIC wants to read it. Send it to him.

Still, I hope someone we know with access and a financial accounting background will read it and assure us this isn't mountain-out-of-molehill thing.

Not that I'd ever defend under-reserving, but this just doesn't sound right.
Tanta | 03.26.08 - 7:12 pm | #

bacon dreamz writes:
Still, I hope someone we know with access and a financial accounting background will read it and assure us this isn't mountain-out-of-molehill thing.

ha ha, Tanta just gave you homework, lama!
bacon dreamz | 03.26.08 - 7:19 pm | #

sysin3 writes:
"The profit was important because it allowed executives to earn bonuses"

That's all we need to know.
sysin3 | 03.26.08 - 7:22 pm | #

Anonymous writes:
Whomping big pdf available at http://graphics8.nytimes.com/ pac...New_Century.pdf
Anonymous | 03.26.08 - 7:23 pm | #

dryfly writes:
So does this mean the Big Four are gonna become the Big Three & K follows Anderson to the Big-Agency-in-the-Sky?

dryfly | 03.26.08 - 7:24 pm | #

Allen C writes:
It generally takes more than misfortune to be fine one week and gone the next.

Someone needs to select report reading music for FFDIC...
Allen C | 03.26.08 - 7:27 pm | #

sk writes:
Well, I've downloaded the report,expect to read it over the next week and so far the bombshells are :

















its in TimesNewRoman, TrueType font. Its rare to see that.

Sorry :-)

-K
sk | 03.26.08 - 7:28 pm | #

Ziggurat writes:
>But doesn't that seem like a lot of report to find one problem<

Not if you are billing by the hour. With no budget.
Ziggurat | 03.26.08 - 7:28 pm | #

RickG writes:
Hmmm...I wonder if we may be heading for a "then there were three" accounting moment.

Not being being of that profession, I can't swear to the rules, but generally, in an ongoing concern, there is a reporting conversion of previous results. Now they may have provided the old years under the new accounting treatment, but I wonder if they provided a current year under the old treatment in the footnotes, and no one picked up on it.

The email from the partner is a perfect example of why these overpaid Big 4 firms shouldn't take payments from the auditees,but rather the SEC. The corporations should be obligated to pay auditing fees on a schedule to the SEC, who then controls the funds. The CPA firms are just one more brick in the wall of regulatory failure!
RickG | 03.26.08 - 7:29 pm | #

scotty looking for the report writes:
According to the report, New Century engaged in seven kinds of improper accounting, including understating its repurchase reserve -- money set aside to repurchase bad loans. In the third quarter of 2006, New Century understated this reserve by at least $104.8 million, at a time when ``the company was being flooded with repurchase claims from investors,'' Missal said.

KPMG's Recommendation

The examiner said several people he interviewed for the report claimed KPMG recommended the improper changes to the reserve calculation, and KPMG denied doing so. Work papers show KPMG ``evaluated and approved the change,'' Missal said.
scotty looking for the report | 03.26.08 - 7:34 pm | #

Allen C writes:
Tanta --> http://globaleconomicanalysis.bl...- revisited.html

Month REO 60+

10-2007 0.00% 11.53%
11-2007 0.04% 13.30%
12-2007 0.64% 16.83%
01-2008 1.83% 19.32%
02-2008 3.56% 22.69%
Allen C | 03.26.08 - 7:35 pm | #

Ziggurat writes:
It looks more like an effort to set up lawsuits to collect the maximum possible damages from KPMG, management, BOD, etc.

If you work backwards from any failed firm and try to determine if losses could have been booked earlier, I think the answer would almost always be yes, especially if it is a complex financial firm.

If the Federal Government had wanted to put KPMG out of business, they would have done it over the tax shelters.

This is just conjecture, since I couldn't make it past skimming the first 20 pages.

Of note is that they reviewed several million documents. A lot of them were likely emails, but still.
Ziggurat | 03.26.08 - 7:36 pm | #

ronin writes:
So what would "earnings management or manipulation" look like, if this isn't it?
ronin | 03.26.08 - 7:36 pm | #

scotty looking for the report writes:
Ok, downloading now. Electricity hangs in the air
scotty looking for the report | 03.26.08 - 7:40 pm | #

Tanta writes:
scotty, if you try to copy and paste that whole thing into this blog's comment section, I'll have to ban you.

I mean it. Restrain yourself for once.
Tanta | 03.26.08 - 7:43 pm | #

scotty looking for the report writes:
Snax time, but for anyone that wants to see it: http://www.klgates.com/ newsstand...ublication=4397

March 26, 2008


Washington, D.C.— The Final Report in the bankruptcy proceedings of subprime loan specialist New Century Financial Corp., filed by Kirkpatrick & Lockhart Preston Gates Ellis LLP (K&L Gates) partner and court-approved Examiner Michael J. Missal on February 29, 2008, was unsealed today by the United States Bankruptcy Court for the District of Delaware.
scotty looking for the report | 03.26.08 - 7:43 pm | #

Ziggurat writes:
I guess we have the right man for the job. How many hundreds of pages can be posted into halo scan?
Ziggurat | 03.26.08 - 7:43 pm | #

Ziggurat writes:
Withdraw that prior attempt at humor.
Ziggurat | 03.26.08 - 7:44 pm | #

scotty looking for the report writes:
Tanta,

Please,

Have I ever done anything that retarded before?

I'll be very nice and condense anything of interest.

Ghheeze!
scotty looking for the report | 03.26.08 - 7:45 pm | #

sk writes:
Well, I'm only at page 3 but this guy writes well ! This is the first time I'm reading one of these - so far its fun - no turgid dry crap - its about 70% as interesting as some of the books written by investigative journalist about financial scandals.

So far, we've had words like "brazen", "fatal", "time-bomb", detonate..

-K
sk | 03.26.08 - 7:45 pm | #

FFDIC writes:
Report reading music: Wanda Jackson
'Fujiyama Mama'
http://youtube.com/watch?v=jVs3iwkAP0k
FFDIC | 03.26.08 - 7:46 pm | #

Quick Scan writes:
KPMG, one of the Big Four accounting firms, endorsed a move by New Century Financial, a failed mortgage company, to change its accounting practices in a way that allowed the lender to report a profit, rather than a loss, at the height of the housing boom ...

Not only endorsed, but suggested, according to some of the interviewees. KPMG denies this, according to the report.
Quick Scan | 03.26.08 - 7:46 pm | #

Ziggurat writes:
I'd like to see their bill for the report. $2 to $6 million? More?
Ziggurat | 03.26.08 - 7:47 pm | #

Quick Scan writes:
oops, Scotty already found this.
Quick Scan | 03.26.08 - 7:48 pm | #

FFDIC writes:
We may need the 580 pages for toilet paper in 2009. Save it.
FFDIC | 03.26.08 - 7:48 pm | #

Tanta writes:
The thing that is getting me about the NYT's version is the claim that this manoeuver was intended to "convince Wall Street that it was in fine shape financially."

You mean, the other Wall Street that wasn't the very party making them repurchase these loans?
Tanta | 03.26.08 - 7:49 pm | #

Rob Dawg writes:
Price? Price? Jeez, reproduction at 50¢ per page bills out at $280 plus priority gotta have it double quick shipping of $93 (plus fuel surcharge).
Rob Dawg | Homepage | 03.26.08 - 7:50 pm | #

scotty looking for the report writes:
OT: This is kids play, The Pension Protection Act doc was over 1000 pages and I'm still the only one that cares... as you may recall, only about 5 senators did not vote for PPA, i.e, Hillary and Obama both did a cursory glance-thing and gave it thumbs up
scotty looking for the report | 03.26.08 - 7:51 pm | #

Shorter writes:
How would one find out a client list for KPMG? Would be interesting to know which other heavily leveraged banks/financials use them...

I'm pretty sure Citi is a client.
Shorter | 03.26.08 - 7:53 pm | #

Quick Scan writes:
Ziggurat writes: It looks more like an effort to set up lawsuits to collect the maximum possible damages from KPMG, management, BOD, etc.

I agree. The report goes ON AND ON about what KPMG did wrong. Like an indictment.
Quick Scan | 03.26.08 - 7:54 pm | #

homedad43 writes:
Of note is that they reviewed several million documents. A lot of them were likely emails, but still.
Ziggurat | 03.26.08 - 7:36 pm | #

--------------------------------

With 580 pages and millions of emails, I'd expect to see some softcore porn on about p 374 of that tome.

I used to love internal emails; what people used to put in them...
homedad43 | 03.26.08 - 7:58 pm | #

Anon writes:
Having dealt with KPMG numerous times in the past, having a former partner of the firm as my current CFO, and working with him closely for almost 2 years now....I can say without the slightest hesitation that the little piece o KPMG that I have seen with my own two eyes is down right scary.
Anon | 03.26.08 - 8:00 pm | #

FreedomWorks writes:
Congress and the Bush Administration passed Sarbanes-Oxley so this type of thing could never happen again....by some measures we've lost a trillion dollars in compliance costs and lost economic growth from SarBox and things are actually worse.
FreedomWorks | Homepage | 03.26.08 - 8:01 pm | #

Allen C writes:
From Waste Management to Enron...
From Xerox to New Century...Hmm...There has to be someone bigger...
Allen C | 03.26.08 - 8:02 pm | #

scotty looking for the report writes:
Dear Tanta,
Ok, here is one clip:

""there is little evidence that either New Century or KPMG personnel ever looked critically at the reserve calculation methodology, including the LOCOM portion, to assess whether it was being done correctly."

That is related to elimination of inventory severity
scotty looking for the report | 03.26.08 - 8:10 pm | #

YamhillMan writes:
Big 4 audit opinions are worth about as much as the Fitch and Moody's ratings...i.e. jack squat...the system needs to be changed back to where all partners of a CPA firm are jointly liable for malpractice. That might provide incentive for the partners to push back when management wants to fiddle with the books.
YamhillMan | Homepage | 03.26.08 - 8:12 pm | #

grumpy realist writes:
Tanta, I downloaded it and am planning to read it this weekend. Will post anything that looks interesting. (And I bet a lot of those pages are quoted material....as said, background for a lawsuit. When you have a section titled "questions of materiality, you just know a big fat lawsuit is making its way towards you tiptoeing in on its little hooves.....)

Makes a nice change from translating German patent claims....
grumpy realist | 03.26.08 - 8:15 pm | #

rsj writes:
Well, wish me luck. Just made it past the table of contents and about to try it. First time I have ever attempted to read a paper like this let's see how it goes. The contents gave off little nibbles.

I 2nd the question, where do you find a client list? I guess I will try my old friend google.
rsj | 03.26.08 - 8:15 pm | #

scotty looking for the report writes:
Bottom line:

"The Examiner concludes that there is joint responsibility for the repurchase reserve calculation errors."

That's all yah need to know...

I'm not sure if this a locked doc, or jpeg images, but not a hypertext doc for me and this may explain the size of the file. In that regard, I have found more and more SEC docs in this non-hypertext context and IMHO, that should not be legal to provide data in a non-search-able format.
scotty looking for the report | 03.26.08 - 8:16 pm | #

my poor savings account writes:
LOL. and I just got my Wells Fargo stock voting paper, and the BoD wants me to accept KPMG.

I doubt my no vote will matter.
my poor savings account | 03.26.08 - 8:18 pm | #

rsj writes:
Non-accountant question and a tad rhetorical but arent some of the table of content descriptions extra not good?

like "KPMG 2005 SOX 404 audit was not
conducted with due care"

Laying the breadcrumbs alomg the sue trail?

Or since I am not familiar with the accounting trade jargon is this talk common about auditors and accounts?

Thanks
rsj | 03.26.08 - 8:21 pm | #

Bob_in_MA writes:
KPMG, one of the Big Four

hmmmm, weren't the big accounting firms known as the "seven sisters" a couple decades ago?

Maybe they'll be able to muster a troika in a few years...
Bob_in_MA | 03.26.08 - 8:26 pm | #

rsj writes:
OOOH. Still on the contents, thought I was done but obviously was wrong. Here is music to my ears

"Certain officers were unjustly enriched"

and under that heading subheadings of
Returning bonuses and recovery

yesss

"we can haz ur bonuz back?"
rsj | 03.26.08 - 8:27 pm | #

scotty looking for the report writes:
One last thing:

about discovery:
"Donaovan identified paragraph 55 of FAS 140 as the basis for his belief that the Ne Century calculation methodology was wrong."

"The examiner concludes that both New century and KPMG bear responsibility for ignoring the Backlog Claims."



>> This is all retarded stuff.....I keep posting here and elsewhere that every accounting firm out there fails audits, and they, like the ratings agencies, like SEC, FTC, DOJ, DOJ, FBI, Treasury, FASB......etc., are filled with retards that got jobs from nepotistic networks run by retards! What is it called:

http://www.pcaobus.org/

Thank God for The Patriot Act and Sarbanes-Oxly-Moron-Retards Act of 2002

All you have to do, is go here to Inspection Reports:

http://www.pcaobus.org/Inspectio...orts/ index.aspx



Ok, once there, go look at any wall street accounting firm and find anyone that passed an aidit......they all fail, year after year, because of nepotism, collusion, corruption and wall street linked to government filled with abusive discretionary actions that have destroyed America!
scotty looking for the report | 03.26.08 - 8:34 pm | #

jm writes:
Back in the 1800s catastrophic steam boiler explosions were an all-to-frequent occurrence, until boilers were required to be insured, and the insurance industry set up inspection standards and systems to avoid losing their shirts.

We need something like this for audits. Public corporations should be required to purchase insurance on their audits, and the audits should be paid for by the insurers. This simple change would eliminate most of the fraud with no need for disruptive laws such as Sarbanes-Oxley. It would also avoid the problems of regulatory capture such as we see with the SEC, etc.
jm | 03.26.08 - 8:36 pm | #

NW writes:
New Century brought to you by the criminals at Harvard Bus School.
NW | 03.26.08 - 8:37 pm | #

scotty looking for the report writes:
Statement of
Financial Accounting
Standards No. 140

FAS140 Status Page
FAS140 Summary

Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities



The Board
concluded that under those requirements, financial statement users would receive information
that would assist them in assessing the effect of securitization transactions on the results of
operations and cash flows and be useful in assessing the valuation of interest-only strips,
subordinated tranches, servicing, cash reserve accounts, and other interests retained in the
securitization. The Board chose to require disclosures by major class of asset securitized
because prepayment, credit loss, and interest rates vary so widely between major classes that
aggregating data across those classes would obscure useful information. The Board decided to
require information about weighted-average life so that disclosures of prepayment assumptions
would be more comparable if different companies use different calculation methods. While
other disclosures were suggested, the Board concluded that the problems associated with
restatements and inappropriate assumptions could be best highlighted by the disclosures it
selected and that the cost of further disclosures might outweigh the benefits of requiring those
disclosures.
scotty looking for the report | 03.26.08 - 8:38 pm | #

scotty looking for the report writes:
OT: I do not want to run DOC, The Department of Crucifixion (Tanta's job), but we do need law and order ASAP and if we get it from NATO or some other "outside" org, hope they come soon, as the enemy is within!

Re: Crucifixion is an ancient method of execution, where the condemned is tied or nailed to a large wooden cross and left to hang until dead.

This form of execution was widely practiced in Ancient Rome.

See Accounting Firms
scotty looking for the report | 03.26.08 - 8:45 pm | #

Ralph Cramdown writes:
I don't think you need that much wood. "Run him out of town on a rail"
Ralph Cramdown | 03.26.08 - 8:59 pm | #

scotty looking for the report writes:
Sorry Tanta, one last post tonight:

Where Did the Risk Go? How MisappliedBond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions

JOSEPH R. MASON †
JOSHUA ROSNER††

According to 2005 figures for the French market,
three legal firms account for more than 60 percent of the legal structuring work in the CDO market, and three others account for more than 50 percent of volume in the RMBS market.”

This concentration could have the effect of amplifying
rating model risks, the risks to legal structures, other legal risks, counterparty
risks, and the risks of misapplications of accounting rules (particularly FAS-140).
Moreover, traditional corporate bond ratings have long a long history of
application and have been empirically tested through various economic cycles.
Many structured products – notably CDOs – have not.

France, Authorite des Marches Financiers, Research Department, Aguesse, Partice Is Rating an Efficient Response to the Challenges of the Structured Finance
Market?, 8 (Mar. 2007).

See Also: Bear Stearns, The Fed, The Treasury and antitrust discretionary abuse.

See Also: Broken Models


OT: The sub-prime RMBS portfolio included $2.87 billion or 60.3% of securities that were issued during 2006 and 2007. At June 30, 2007, 86.3% of these securities were rated Aaa, 11.7% were rated Aa, 1.9% were rated A and 0.1% were rated Baa, and $737 million or 29.7% of the Aaa securities are insured. The expected weighted average life of our 2006 and 2007 sub-prime RMBS portfolio was estimated to be approximately 3 to 3.5 years at origination.

ABS CDOs are securities collateralized by a variety of residential mortgage-backed and other securities, which may include sub-prime RMBS. As of June 30, 2007, this portfolio had unrealized losses of $7 million.

http://www.secinfo.com/d11MXs.u1xJj.htm
scotty looking for the report | 03.26.08 - 9:09 pm | #

energyecon writes:
The Seven Sisters were actually Big Oil once upon a time...


The Seven Sisters

The Seven Sisters were the following companies:

1. Standard Oil of New Jersey (Esso), which merged with Mobil to form ExxonMobil.
2. Royal Dutch Shell (Anglo-Dutch)
3. Anglo-Persian Oil Company (APOC) (British). This later became Anglo-Iranian Oil Company (AIOC), then British Petroleum, and then BP Amoco following a merger with Amoco (which in turn was formerly Standard Oil of Indiana). It is now known solely by the initials BP.
4. Standard Oil Co. of New York ("Socony"). This later became Mobil, which merged with Exxon to form ExxonMobil.
5. Standard Oil of California ("Socal"). This became Chevron, then, upon merging with Texaco, ChevronTexaco. It has since dropped the 'Texaco' suffix, returning to Chevron.
6. Gulf Oil. In 1985 most of Gulf became part of Chevron, with smaller parts becoming part of BP, and Cumberland Farms, in what was at that time the largest merger in world history. A network of stations in the northeastern United States still bears this name.
7. Texaco. Merged with Chevron in 2001. The merged company was known for a time as ChevronTexaco, but in 2005 it changed its name back to Chevron. Texaco remains as a Chevron brand name.
As of 2005, the surviving companies are ExxonMobil, Chevron, Shell, and BP, now members of the "supermajors" group.

[snip]
energyecon | Homepage | 03.26.08 - 9:16 pm | #

Shnapster writes:
We need to call Nurse Brad! Stat! The Shnapster has filled his bedpan again.

Note to RN Morrice: No more Skyline chili for this patient.
Shnapster | Homepage | 03.26.08 - 9:17 pm | #

Viewing with alarm writes:
Thank God there are patriots willing to read this stuff and tell the rest of us how much this one will eventually cost the taxpayers. Behind every fraud eventually lies a federal bailout.
Viewing with alarm | Homepage | 03.26.08 - 9:32 pm | #

Big ? writes:
I apologize for this OT post but I was wondering if anyone out there knows anything about the internals at the Citadel Hedge Fund in Chicago over the last week or so. I have some information but the picture is incomplete. Ie. I don't want to be placed in a position where I am seen to be starting rumors.
Big ? | 03.26.08 - 9:50 pm | #

Stinky writes:
In the middle ages they would sometimes nail particularly bad people to a cross, then turn said cross upside down and plant it at the low tide line. Not a pleasant way to go, unless you could hold your breath through a tide cycle, in which case they called you a witch.

I can't remember what that's called but I'm sure it has something to do with mortgage and that whole mort thing.

Is the New Century guy still running regulatory in New Mexico or Arizona or whatever?
Stinky | 03.26.08 - 9:51 pm | #

Dean writes:
SOX failed the average investor!!!!

I guess you can't legislate morality...
Dean | 03.26.08 - 10:28 pm | #

anonymous writes:
Shorter writes:
How would one find out a client list for KPMG? Would be interesting to know which other heavily leveraged banks/financials use them...

I'm pretty sure Citi is a client.
Shorter | 03.26.08 - 7:53 pm | #

I know Downey Savings (DSL)uses them. God knows they are under reserved.
anonymous | 03.26.08 - 10:37 pm | #

scotty looking for the report writes:
OT: In early 2005, the United States member firm, KPMG LLP, was accused by the United States Department of Justice of fraud in marketing abusive tax shelters. KPMG LLP admitted criminal wrongdoing in creating fraudulent tax shelters to help wealthy clients avoid $2.5 billion in taxes and agreed to pay $456 million in penalties in exchange for a deferred prosecution agreement. KPMG LLP would not face criminal prosecution if it complied with the terms of its agreement with the government. On January 3, 2007, the criminal conspiracy charges against KPMG were dropped.[5] However, Federal Attorney Michael J. Garcia stated that the charges could be reinstated if KPMG does not continue to submit to continued monitorship through September 2008.[6]

Before the settlement, the firm, on the advice of its counsel Skadden, Arps, Slate, Meagher & Flom LLP, removed several tax partners and admitted "unlawful conduct" by those partners. The firm agreed to cooperate with DOJ's investigation and help prosecute former partners who had devised and sold the tax shelters. Additionally, the firm hired former U.S. district judge Sven Erik Holmes to monitor its legal and regulatory affairs.
scotty looking for the report | 03.26.08 - 10:45 pm | #

ed ericson writes:
Does it matter that New Century was a real estate investment trust? I was under the impression that REITs couldn't--weren't allowed--to hold reserves. I thought they had to pay excess out in quarterly dividends. Not so?
ed ericson | Homepage | 03.26.08 - 10:58 pm | #

scotty looking for the report writes:
Now that was a cool random troll-thing:

Federal Attorney Michael J. Garcia stated that the charges could be reinstated if KPMG does not continue to submit to continued monitorship through September 2008.

Re: The prosecutor, Boyd M. Johnson III, leads the public corruption unit of the United States attorney’s office for the Southern District of New York, which is handling the investigation of the Emperor’s Club V.I.P., a high-priced prostitution ring that Mr. Spitzer patronized, according to law enforcement officials.

Mr. Johnson and his boss, Michael J. Garcia, the United States attorney, will be the ultimate arbiters of whether to bring charges against Mr. Spitzer, and experts expect that they will make the decision in a deliberate manner and only after hearing from his defense team.

Ok, Mr. Garcia..... are you gonna blink and back off like a punk, or bust these crooks? I imagine you will cave in, roll over and fade away! Justice will not be served again!
scotty looking for the report | 03.26.08 - 11:06 pm | #

scotty looking for the report writes:
$456 million in penalties in exchange for a deferred prosecution agreement.

$456 million in penalties in exchange for a deferred prosecution agreement.

$456 million in penalties in exchange for a deferred prosecution agreement.
scotty looking for the report | 03.26.08 - 11:07 pm | #

scotty looking for the report writes:
Dear Tanta,

Can we (taxpayers)resume criminal conspiracy charges aginst KPMG now or what??

Re: KPMG LLP would not face criminal prosecution if it complied with the terms of its agreement with the government. On January 3, 2007, the criminal conspiracy charges against KPMG were dropped.
scotty looking for the report | 03.26.08 - 11:13 pm | #

scotty looking for the report writes:
KPMG’s audit methodology incorporates a four-part approach:

* Planning. We use a risk-based approach to understand your company, its environment, and its industry. The audit team preliminarily identifies the areas where the risk of material misstatement in your financial statements is the highest. We can do this through structured interviews of management and others, analytical procedures, observation, and inspection.
* Control Evaluation. Using a structured approach, we evaluate controls in order to assess the risk of significant misstatement for each audit objective.

Are the other two are related to coin flips and payoffs??
scotty looking for the report | 03.26.08 - 11:33 pm | #

Anonymous writes:
Re: Chris Dodd, D-Conn., chairman of the Senate Banking Committee, summoned Paulson, Bernanke, Bear Stearns President Alan Schwartz and JP Morgan Chairman James Dimon and others to appear before his panel next Thursday to lay out the rationale behind the Bear Stearns takeover deal and its implications for taxpayers. The Fed originally agreed to guarantee $30 billion of Bear Stearns assets, including risky mortgage-backed securities. Under new terms reached earlier this week, JPMorgan said it will now take on the first $1 billion of losses, while the Fed backs the remaining $29 billion.

>> Maybe these pussies in Washington can also invite some accounting firms and a few rating agencies, maybe some pals from SEC, heck, maybe even The FBI, so they can explain why they were involved in the negotiations, "before the market opened in Japan"....
Anonymous | 03.26.08 - 11:54 pm | #

Yalt writes:
ed ericson writes:
Does it matter that New Century was a real estate investment trust? I was under the impression that REITs couldn't--weren't allowed--to hold reserves. I thought they had to pay excess out in quarterly dividends. Not so?

Almost true--they're required to pay a very high percentage of taxable income as dividends and the reserves aren't deductible for tax purposes, but the required payment isn't 100%.

My impression at the time, and I haven't changed my mind, was that this was precisely why these firms became REITs. There were basically two ways for the principals to skim the proceeds: (1) sell the company to a third party at the top, or (2) pay shareholder dividends far in excess of what was prudent, making eventual insolvency a near-certainty.

The REIT structure gave legal cover for plan (2).

(This is completely irrelevant to the question of how they should have accounted for prospective losses, of course. Just because you won't or can't hold the cash, doesn't mean you shouldn't take the projected hit to earnings.)
Yalt | 03.27.08 - 12:16 am | #

Darkness writes:
>New Century brought to you by the criminals at Harvard Bus School.

Harvard Business School has also brought us other great and immensely competent favorites like GW Bush.

How Harvard continues to handle the brand damage is beyond me.
Darkness | 03.27.08 - 1:02 am | #

Pondering the Mess writes:
Hmm... a good chunk of this Bubble was built upon people lying: lying about their incomes, lying about the status of their flipper properties (claiming that they are all "owner occupied") and so on.

Who coodadnode that the loan dealers in this mess were also crooked? What a surprise! Hehehe... next, somebody will say that the big investment banks are also crooks - oh, where is the faith in our beloved Amerika, where stealing is its own reward... or something... Hahaha!
Pondering the Mess | 03.27.08 - 8:09 am | #

son of zinger writes:
Agency theory. Pure and simple.
son of zinger | 03.27.08 - 9:00 am | #

ed ericson writes:
Thanks, Yalt. Now I wonder how the REIT structure may have contributed to a scheme to skim the cash. Assuming their was a scheme, of course. And if there was a scheme, the accounting firm--especially one so sophisticated--would have had to know. Hmm? And if this is true, then the guy who wrote the 580 page report should have noticed this too?
ed ericson | Homepage | 03.27.08 - 9:00 am | #

Patrick writes:
As a REIT investor, I think the New Century case serves as a nice model for why the "active" mREIT structure has failed so miserably.

While New Century's demise was greatly aided and abetted by insufficient accounting knowledge on the part of management, and blatant stupidity on the part of KPMG, repurchase obligations were the ultimate demise of all of these active mortgage REITs - Impac Mortgage, NovaStar Financial, Fieldstone Mortgage, and ECC Capital. These companies tried to minimize their tax obligations to lower their cap rates and keep mortgage lending/investing profitable against a backdrop of rising rates.
Patrick | Homepage | 03.27.08 - 9:17 am | #

Mike Dillon writes:
Patrick pointed to
"Impac Mortgage, NovaStar Financial, Fieldstone Mortgage, and ECC Capital.

Take a look at who their favorite servicers were...
Mike Dillon | Homepage | 03.27.08 - 11:38 am | #