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all kinds of public and private entities are financing themselves through bonds because those don't count as "debt".

Has this been enshrined in Generally Accepted Accounting Practices? Is the coupon now an expense and the bond an asset to the corporation? And is this the practice in most countries?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 21st, 2011 at 01:39:57 PM EST
[ Parent ]
Gah, I mean derivatives!

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Thu Apr 21st, 2011 at 01:41:56 PM EST
[ Parent ]
You were bending my head out of shape. :-) So the proceeds of selling the bond constitute assets and the bond itself a liability? (Unlike Jake I never took accounting.)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 21st, 2011 at 05:03:58 PM EST
[ Parent ]
Forget what I typed about bonds and restart here:
The financial system has move(d) on f(ro)m loans to derivatives as means of financing.
Thus default would be on derivatives?
Well, states are still issuing bonds, but when it comes to loans, all kinds of public and private entities are financing themselves through bondsderivatives because those don't count as "debt". You thought that deal Goldman Sachs structured for Greece was a one-off?


Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Thu Apr 21st, 2011 at 05:24:36 PM EST
[ Parent ]
Footnotes [to financial statements] also contain disclosures relating to contingent losses. Firms are required to accrue a loss (recognize a balance sheet liability) when both of the following conditions are met:
  • It is probable that assets have been impaired or a liability has been incurred.
  • The amount of the loss can be reasonably estimated.
If the loss amount lies within a range, the most likely amount should be accrued. When no amount in the range is a better estimate, the firm may report the minimum amount in the range.
SFAS (Statement of Financial Accounting Standards) 5 defines probable events are those "more likely than not" to occur, suggesting that a probability of more than 50% requires recognition of a loss. However, in practice, firms generally report contingencies as losses only when the probability of loss is significantly higher.
Footnote disclosure of (unrecognized) loss contingencies is required when it is reasonable possible (more than remote but less than probable) that a loss has been incurred or when it is probable that a loss has occurred but the amount cannot be reasonably estimated. The standard provides an extensive discussion of loss contingencies.
(Gah)

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Thu Apr 21st, 2011 at 01:46:52 PM EST
[ Parent ]
SFAS (Statement of Financial Accounting Standards) 5 defines probable events are those "more likely than not" to occur, suggesting that a probability of more than 50% requires recognition of a loss. However, in practice, firms generally report contingencies as losses only when the probability of loss is significantly higher.

Translation: Firms generally report contingencies as losses when irrefutable evidence of a loss has made its way into the public domain and can no longer be obfuscated by contrary pronouncements and obsfuscation -- if then.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 21st, 2011 at 08:34:17 PM EST
[ Parent ]

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