A Quote by Charlie Munger
Everyone caved, adopted loose [accounting] standards, and created exotic derivatives linked to theoretical models. As a result, all kinds of earnings, blessed by accountants, are not really being earned. When you reach for the money, it melts away. It was never there. It [accounting for derivatives] is just disgusting. It is a sewer, and if I'm right, there will be hell to pay in due course. All of you will have to prepare to deal with a blow-up of derivative books.
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To say accounting for derivatives is Americais a sewer is an insult to sewage.
The stupid and dishonest accountants allowed the genie of totally inappropriate accounting to descend on derivatives books. And once this has happened - people get status, etc. - it's impossible to get it back into the bottle.
Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings.
Derivative trading with mark-to-market accounting degenerates into mark-to-model. Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade.
Accounting consequences do not influence our operating or capital-allocation decisions. When acquisition costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard accounting principles than to purchase $1 of earnings that is reportable.
Do we have to regulate derivatives? Yes, we do. 'Cause when I did this in my investments, frankly, no one knew who could pay who. But derivatives have an important place in our economy.
Every regulatory speech on derivatives takes a bow to their hedging 'benefits.' Less publicly, regulators pay their respects to derivative profits, a blessed relief from the banks' troubled loans to less-developed countries, highly leveraged companies, and real estate swingers.
From the 1990s onward, the financial sector created a vast array of instruments designed to separate investors from their money, financial derivatives of an ever-increasing level of complexity. At some point, this complexity reached a point where even the creators of the derivatives themselves didn't understand them.
Derivatives serve practically no purpose except to enrich bankers through opaque pricing and to deceive investors through off-the-balance-sheet accounting.
Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up.
You have to understand accounting and you have to understand the nuances of accounting. It's the language of business and it's an imperfect language, but unless you are willing to put in the effort to learn accounting - how to read and interpret financial statements - you really shouldn't select stocks yourself
Life can be lived at a remove. You trade in futures, and then you trade in derivatives of futures. Banks make more money trading derivatives than they do trading actual commodities.
One day I was in Starbucks going through one of my books on accounting, and this beautiful young woman came up to me and said, 'My accounting book is different from yours.' Her name was Joyce, she had a background in finance and administration and ran a surgery center. Within a short time, we were married.
People far too often associate derivatives markets with mere speculation, but there are very legitimate businesses that need derivatives to protect themselves against risk.
By the standards of honest, if unorthodox, accounting, government workers don't pay taxes, but are paid out of taxes. In other words, they pay taxes out of money confiscated from taxpayers, who, in turn, pay taxes twice: on their own income and on the income of members of the bureaucracy. At the very least, this should disqualify state workers from voting.
Probably the best advice I ever got in my life was from the head of the accounting department, Mr. Hutchinson, I believe at the Glidden Company in Chicago, and he told me, 'You really aren't cut out for accounting.'
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