United States Stimulus Package

http://www2.canada.com/scripts/story.html?id=3771621

(more in depth)

http://technorati.com/politics/article/federal-reserve-announces-second-monetary-stimulus/

(a quick summary)

Summary:

Following their economic recession beginning late in 2007, the United States economy has been extremely frail. The entire economy of the U.S. faltered when the demand for housing drastically plummeted during the early stages of 2008. The recession saw the rapid nose-dive of federal interest rates. The rate offered by major banks plunged from a high of 4.25% in December 2007 to a measly 0.25% in December 2008. In an attempt to jump start the highly stagnant economy, the U.S. Federal Reserve has recently ordered the purchase of treasury bonds to the astonishing sound of $600Billion USD. The main purpose behind this massive transfer of money is to lower the cost for consumers and to encourage the increased purchase of goods and services. The bonds will be purchased in multiple installments over the next 8 months.

Connections:

My article is connected to Chapter 2 in the text as it relates to the financial statements produced by a entity and by extension the flow of cash within a business or corporation and the position of a business entity financially. By purchasing such a large amount of U.S. treasury bonds, the federal reserve is essentially handing the money over to the treasury for their own use. With the newly acquired funds, the U.S. treasury would then proceed on to inject funds into the economy as they see fit. It is hoped that by injecting financial funds into the economy, the effects of the economic recession would be lessened and new job opportunities created for the public. As a result, the financial position of the U.S. treasury will look much sounder than it had been previously.

Reflection:

The condition of the United States economy is still quite frail following their economic recession which began late in 2007. Pumping $600Billion USD into the economy may indeed help their situation but that is far from a given. Stimulus packages are not a recent thing. In fact, they have been around for decades. This theory of John Maynard Keynes’ (1883-1946) basically mentioned that if the economy isn’t doing too well, the government should increase the amount of money in circulation. Supporters of Keynesian economics believe that the extra money would stimulate the economy by providing more job opportunities for the public. Ideally, the unemployment rate would decrease and the newly employed individuals would spend their money on consumer goods which would in turn create more jobs. Oftentimes in life, things do not always go so smoothly. There could be a lot of serious complications for putting such a big sum of money into circulation. The German economy faltered and suffered from spiraling inflation following the conclusion of World War II as they printed large sums of money in order to meet reparation demands. The increased amount of money in circulation would further devalue the U.S. currency and the inflation level could potentially be pushed higher.  

Multi-Million Dollar Mortgage Fraud: Arrest Made

Summary:

Mortgage fraud has become a wide-spread problem in today’s society. Some would even label it as the ideal “white-collar” crime to commit. For a period of time, the crime has been exceedingly popular due to its lucrative nature and the fact that the fraud is not easily detectable. Back during the North-American real estate boom a few years back, banks were eager to hand out mortgages and were very lenient with their terms. Someone with no steady income could easily secure a mortgage for a house. Many ordinary folk were swindled into taking out a mortgage to purchase a house which they were told would be sold later for profit. In the end; the perpetrator walks away with the dough, the buyer is in debt, and the bank is stuck with an overpriced house.

Connections:

The connection my article has with the text is the Generally Accepted Accounting Principles (GAAPs), the various financial statements involved in the world of business and by extension the financial position of an individual or business. Nowadays, in an economic downturn, financial institutions are careful in their procedure of securing a loan. They wish to make sure that they have a way to recover their money should they need to do so. To my knowledge, the authorization of poorly secured mortgages is not directly violating any of the accounting guidelines. However, it is still ridiculous that individuals without steady jobs would be able to take out a mortgage to buy a house. The banks went wrong when they neglected to thoroughly look into the financial position of the individual requesting a loan before granting it. With such an obvious loophole, it was only a matter of time till someone choose to abuse it.

Reflection:

In my opinion; all institutions that handle substantial amounts of money, including banks, should be required by law to follow the guidelines set out by the generally accepted accounting principles. In the case of my article, Robert Manuel Moniz of Montréal gained approximately $5.0M C.A.D. from his scheme. If the bank had been more careful with their procedure of authorizing the mortgage requests, this would likely not have happened. The bank loses the money but in the end, it is us ordinary folk that gets hit the hardest with scams like these. Financial institutions will pass off their loss to users to their service in the form of higher interest rates and service charges.

Multi-Million Dollar Mortgage Fraud: Arrest Made

U.K.-based energy company reviews expense accounting

Summary:

National Grid PLC (NGG) is a U.K. based company with electrical and natural gas networks operating both in the United States and the United Kingdom. Earlier this week, the NGG has stated that they will be appointing a consultant to conduct an independent review of the company’s policy in accounting for the expenses accrued by their branches operating on U.S. soil. The decision was made following the announcement that U.S. regulators would be commencing an investigation as to how the company recorded its expenses accumulated in the U.S. It is likely a long shot but could NGG suffer the same sort of fate that Enron Corporation suffered back in 2001?

Connections:

The connection to this chapter is the accounting standards known as the generally accepted accounting principles (GAAPs). The matching principle suggests that both revenue and expenses are required to be matched to their appropriate fiscal periods. It is not logical to allow a business to choose when to account for their revenue and expenses. If that were the case, businesses could easily manipulate their financial statements to their liking. For instance, Enron Corporation had previously falsely reported their revenue in the financial statements produced by the company. As a result, this greatly misrepresented the company’s financial situation. I believe that it is a good move on the part of the U.S. government to open an investigation on the NGG. With the their economy already rather unstable, it is best for the nation to put a stop to all forms of corporate scandals no matter how big nor small.

Reflection:

In my opinion, all businesses should be required to strictly follow the guidelines set out by the generally accepted accounting principles. These guidelines are there to basically set out the black and the white in the world of accounting. If businesses are regulated by set standards, many unethical individuals would not hesitate to take advantage of the consumers. The government should instate various penalties for failing to abide with the GAAPs ranging from fines to potential jail time depending on the level of severity. If the National Grid PLC, or any other business for that matter, is not accounting for their expenses properly, in all likelihood, they are not paying the correct amount of taxes. At a glance, accounting for expenses may not seem like such a big deal. However, recall that you are taxed on the amount you have left after you deduct all your expenses. With that in mind, expense figures can be inflated to minimize the amount of taxes owed. The government needs to take a hard stand in enforcing the GAAPs or we may see some more serious corporate scandals in the future.