How is GM doing the books really?

GM has announced a loss of 38.96 billion dollars for just last quarter. It comes to $68.85 per share which is humungous considering the shares are only worth $34 each. The bulk of the loss is $38.6 billion for a write down of tax credits and doesn't effect its cash position. Oh really?
What sort of accounting is this? GM is supposed to be a car maker, with a few sidelines like diesel locomotives. Accounting, profit and loss, ought to show money made or lost building cars. In the fine print, GM announced that it only lost $247 million on cars, still a bundle, but peanuts compared to $38.6 billion.
Why was a "tax credit" carried on GM's books as anything? Taxes are an expense, paid every year. You pay 'em and that's that. GM is supposed to do accounting to allow management and investors know what's happening in the car business. When GM's accountants pull an enormous "loss", that has nothing to do with making cars, out of thin air, how can we outside investors, stockholders, have any confidence that the other numbers in the report mean anything? Back when the accountants put the "tax credit" on the books, did that imaginary gain turn a losing year into a winning year?
What is really going on here?

How to loose a zillion dollars (From WSJ)

For years, Alan Greenspan and the minded argued that allowing Wall Street to slice and dice loans and sell pieces as securities was an innovation that dispersed risks widely and made the financial system and the economy more stable. There's a lot to that. But as the loans leave the books of those who make them and are sold off in part to different investors, no one can be sure who holds the risk. If everyone fears that the other guy has a portfolio of toxic waste, markets freeze and the rest of the economy can be hurt. That in large part explains the behavior of big banks in the US and Europe since early August.
At some point the risks that greater opacity and complexity pose to financial stability offset the benefits of widely dispersing risks. Because what is in the clear interest of each individual player may not be in the interest of the system as a whole, market players aren't likely to get this balance right without at least prodding from government.

"Disperse risks widely" means nobody really cares how risky the deal is, 'cause their money isn't at stake. How good is any particular mortgage? Only the loan officer granting the loan really knows. Nobody else has a clue. The whole idea of mortgage is the lender can seize the property and sell it if the borrower defaults on his payments. This doesn't work if the house isn't worth the face value of the mortgage. You don't want to issue $100K mortgage on a dog house or a two car garage.
So how much is a property really worth? The loan officer guy has to know the local real estate scene. He has to know the good locations from the less good, which takes local knowledge. For instance he has to know that Melrose is a better location than Malden, Wakefield, Stoneham and Saugus, or that Cambridge is better than Somerville. Then he has to decide if this couple can make the mortgage payments based on what they earn now, and the likelihood of of a layoff, a pregnancy, a divorce, a death, or disablement.
If the loan officer is loaning his own money, he will be quite prudent. If on the other hand he plans to sell the mortgage to Bear Stearns or Merrill Lynch as soon as he can, then he doesn't care so much. If the mortgage goes sour it's no skin off his nose (or money out of his pocket). If he gets paid closing costs, then he will be inclined to OK nearly anything, he wants those closing costs, and since risks have been "dispersed", why not approve just about any loan?
One other effect of reckless mortgage lending. It allows the price of houses to rise. House prices are limited by how willing the bank is to grant a mortgage. The house doesn't sell without a mortgage, so to a large extent the mortgage lenders hold down the price of houses by refusing to grant mortgages on overpriced dwellings. Remove this constraint and the price of housing climbs.

U of Del faculty unaware of student indoctrination program

More sad news from my old Alma Mater. According to this, the faculty claims ignorance of the student indoctrination/brainwash program until students brought it to their attention. If true it means a truly clueless faculty or a Machiavellian administration, or both. Otherwise it means the faculty is trying to distance itself from the storm of criticism. Either way it reflects little credit upon U of Del.

American Assn of University Professors on Academic Freedom

In response to a rising chorus of critics, including the National Assn of Scholars, the AAUP report on academic freedom was published this last June. It contains a few really amazing ideas. For instance.

"Freedom in the classroom" is ultimately connected to freedom of research and publication. Freedom of research and publication is grounded in the exercise of professional expertise. Investigators are held to professional standards so that the modern university can serve as "an intellectual experiment station, where new ideas may germinate and where their fruit, though still distasteful to the community as a whole, may be allowed to ripen until finally, perchance, it may become part of the accepted intellectual food of the nation or of the world."

According to this, freedom of the classroom means freedom skip teaching of the well understood and generally accepted concepts of the subject in favor of experimental, fringe, and controversial concepts. All subjects have many ideas that are well understood, generally accepted and true. All subjects also have many new, experimental, and controversial ideas that are still subject to debate among experts, poorly understood, and needing more study before they are known to be true. The amount of generally accepted material that students ought to know, is so vast that it is irresponsible for professors to teach the experimental and controversial at the expense of teaching the well understood basics of the subject. It is perfectly OK for professors to research and publish new, way out, and controversial ideas, but it is NOT Ok in my view to consume valuable class time teaching them at the expense of teaching the basic generally accepted ideas.

Under this test, however, the Committee for a Better North Carolina could not possibly have known whether the assignment of Ehrenreich's Nickel and Dimed, which explores the economic difficulties facing low-wage workers in America, was an example of indoctrination or education. It is fundamental error to assume that the assignment of teaching materials constitutes their endorsement.

It is a fundamental error on the student's part NOT to assume that the professor assigned the book 'cause he believes it true, valuable, and relevant. And to avoid criticizing it within hearing of said professor.

Citigroup Announces $11 billion writeoff

"Mr Prince's four year tenures as Mr Weill's successor ended yesterday wit hte bank engulfed in problems stemming from massive write-offs due to the turmoil in credit markets" (WSJ).
I like the "turmoil in credit markets". Couldn't have been caused by Citigroup speculating in subprime mortgages, deals that involve lending long and borrowing short. No, it's something beyond Citigroups control, "turmoil in the credit markets", an act of God, like the weather, for which no blame can be attached.

Pakistani Politics

Pakistan is a country of 170 million, of which 20 million live in the major city, Karachi, and most of the rest live on the land. The land is watered by the Indus river and has been productive farmland since the prehistoric Indus valley civilizations. The bulk of the land is owned by a few wealthy aristocratic landlords, the great mass of the people work for landlords. Only the landlords are wealthy enough and educated enough to stand for election to parliament. The mass of the farm workers are uneducated, lack newspapers, radio, and TV. Uneducated and poorly informed they may be, but they are not stupid. They know it's a good idea to vote for their landlord lest something bad happen to them. This makes the elected Pakistani government into a government of landlords, who tend to be more interested in preserving their social and economic position than anything else.
In the normal course of events, an elected Pakistani government will slip into corrupt practices that would make the worst of US politicians look like boy scouts. Things will deteriorate until finally, despairing of reform, the Pakistani Army will depose the civilian government and take matters into it's own hands. The Army is widely respected in Pakistan, so that military rule is seen as a good thing, a needed house cleaning. The incoming military regime will make some reforms, and for a while things will seem good. After the passage of some years, the new wears off and a new civilian government is set up, the Army goes back to the barracks and life goes on. Pakistan has gone thru this cycle repeatedly since the country was created in 1947.
Today could become just another turning point away from a military regime back toward a civilian one. If it were not for the growth of extreme Islamic parties in Pakistan, we could distance ourselves from the turmoil and come to terms with the new government whenever it establishes itself. Unfortunately, the true strength of the Islamic extremists is not well known. Saudi financed madrassas educate a huge percentage of Pakistani youth in the Wahabi sect of Islam, which is a bad sign.

University of Delaware takes heat

Follow up. University of Delaware (my old Alma Mater) had been conducting an offensive and gross student indoctrination. White students were told they were racist just for being white and scheduled for mandatory sensitivity training. Students were asked "When did you discover your sexual identity?", which sounds more like a sexual proposition than a serious question. This caused a furore in the blogosphere and seems to have spread. My mother heard about it somewhere (she doesn't read blogs) and gave me Xerox of the F.I.R.E handout on the subject. This widespread bad publicity might have had something to do with the University's public back down on the program.
Even after canceling the program, you have to wonder how many of the wonderful left thinking folks who set it up are still in the U of D administration, planning a comeback when the heat lets up.