Voodoo, Fraud, and Economic Fairy Dust

"Wow! Instantly I thought, 'It's like magic! So what are these wonderful Level 3 gains? And can I get some, too? And can I get enough to bail my sorry butt out of the mess I have gotten myself into before next Tuesday at 4:00 PM?'"

by The Mogambo Guru

With the economy in a funk, naturally there are rumors that there are going to be some layoffs, and so everyone is wondering who will be "let go" around here, and everybody thinks it will be me, and some are even saying to my face, "I hope it's you, you Stinking Mogambo Creep (SMC)."

So, obviously desperate for a way to juice up my performance statistics, I luckily happened upon an item at Bloomberg.com where, "Wells Fargo reported record net income of $2.28 billion, up 9 percent from a year earlier. Read the footnotes to its latest quarterly report, though, and you will see a new term in accounting lingo called 'Level 3' gains. Without these, the financial-services company's earnings would have declined."

Wow! Instantly I thought, "It's like magic! So what are these wonderful Level 3 gains? And can I get some, too? And can I get enough to bail my sorry butt out of the mess I have gotten myself into before next Tuesday at 4:00 PM?"

The answer is apparently "yes" to all of the above, as Bloomberg admits that Level 3 gains are "Pretty much whatever companies want them to be." Whee! This is tooOOOoo sweet!

It is explained that "Level 1 means the values come from quoted prices in active markets. The balance-sheet changes then pass through the income statement each quarter as gains or losses. Call this mark-to-market." This is the ugly "factual" stuff that is causing all my headaches and probably causing "career death" next Tuesday at 4:01 p.m.

"Level 2 values are measured using 'observable inputs,' such as recent transaction prices for similar items, where market quotes aren't available. Call this mark-to-model." Ooh! I think we are getting warm here as regards usefulness to me, as this is obviously a source of balance sheet stuff to boost my bottom line, as I can already show where other executives at my level, with my level of experience and training, are never asked to clean the Executive Washroom, which is a huge corporate-wide benefit not accounted for in my department's sub-ledgers.

And which wouldn't be so bad if they would at least flush after they use the toilet, but jeez! What a bunch of pigs! So me cleaning the place is worth a LOT, for which I should get credit!

Anyway, as good as these gains are in making me look better, the real plums are, "Then there's Level 3. Under Statement 157, this means fair value is measured using 'unobservable inputs.' While companies can't actually see the changes in the fair values of their assets and liabilities, they're allowed to book them through earnings anyway, based on their own subjective assumptions. Call this mark-to-make-believe."

In case anybody was watching, I appeared stoic and inscrutable, while inside I was happily exclaiming, "Whee! Whee! Here it is! Magical accounting dust! I can handily assume enough gain in, ummm, Goodwill (as the number of people and businesses who are suing me, and the company, goes down because they start finally giving up in disgust!) to offset the loss of the company's precious damned cash and assets that they are always whining about."

Now, thanks to these new Level 3 gains, we made, in a manner of speaking, a huge, glorious, magnificent net-worth profit on the balance sheet, for which the company owes me Big Freaking Time (BFT)! Now, instead of blubbering and begging for my job back, thanks to Level 3 gains I can say, "So get your sorry butt out of my chair, out of my office and start arranging some kind of huge bonus for me as your way of saying, 'Thanks, Mogambo! And we are sorry about calling you a thieving, incompetent liar in the company newsletter all the time!'"

The idea is so deliciously appealing that in my overwhelming sense of utter gratitude at not only being saved from termination but actually reaping rewards, I sent an email off to Bloomberg.com saying, "Speaking for myself and all the other incompetent morons in the world who are in waaaAAAaaay over their heads, thank you, thank you, thank you for showing me how to hide our dangerous incompetence and look good doing it!"

Amazingly, the next thing I read is Bloomberg.com saying, "You can thank the Financial Accounting Standards Board for this. The board last September approved a new, three-level hierarchy for measuring 'fair values' of assets and liabilities, under a pronouncement called FASB Statement No. 157, which Wells Fargo adopted in January."

And if you are looking for a news scoop, not even Bloomberg.com knows that Mogambo Inter-Planetary Enterprises, Inc. (MI-PE, Inc.) adopted good old FASB Statement No. 157 about ten seconds ago!

Then, just when things looked like they were going to go my way for a change, Jack Ciesielski, who is, "publisher of the Analyst's Accounting Observer research service", proves that he is no friend of The Mogambo when he warns people about me and my new accounting ploy, and sends around a notice that says, "If you see a big chunk of earnings coming from revaluations involving Level 3 inputs, your antennae should go up. It's akin to voodoo.''

In my own defense, I urge you to disregard any pronouncement of Mr. Ciesielski, as he apparently doesn't even know the difference between voodoo and desperate, deliberate fraud.

So although he doesn't actually mention me by name, you can tell that he is ratting me out, and when I ruin his credit rating in cruel revenge, he will probably get all upset and say, "Hey! You Stinking Mogambo Rat (SMR)! What in the hell did I ever do to you that you would ruin me like that?" and I will reply, "Like you don't know! Hahahahaha!"