IIRC, he was an obscure finance professor in Portugal who found himself in the Portguese cabinet. This was a time when Portugal was the “Sick Man of Europe:” massive budget deficits, rampant inflation, and years of political chaos.

If I remember the story correctly, Salazar reformed the government accounting system such that the Portuguese government was able to balance its budget for the first time in 30 years.

After achieving this impossible feat, Salazar was clearly qualified for the post of President for Life, which he held for most of his remaining life.

If I set out to build and sell a house, I, or my accountant, can set any price we wish on our proposed value of the property. However, the market will decide what that price will be if and when the house is sold.

From the book-keeper’s position, the only price that counts is the one that the house sold for. If that is what you mean by “The accountant registering the price of the asset,” then we are in agreement.

Per Said “And this applies perfectly to those securities backed by the mortgages to the subprime sector made even worse by the fact that at some moment there was not even a market for these securities.”

That banks created artifacts that have no market makes it pretty clear that the value of the mortgages at that point in time is near zero. The mortgage owner has little choice but to hang on and wait for a market to form.

Are we talking of accounting or are you talking of something else? Of course in double-entry book-keeping the accountant does register the price paid for the assets?

Dan “Your example hardly fits any such criteria, since the original paintings purchased at great expense were reworked into something of such unique value that only the marketplace will tell the accountant what the asset is now worth of an asset”

And this applies perfectly to those securities backed by the mortgages to the subprime sector made even worse by the fact that at some moment there was not even a market for these securities.

But here I jump of this issue double entry issue of yours Dan since there you might have something else on your mind that I can’t comprehend or you can’t explain.

Here’s a link to his letter of support: http://financialservices.house.gov/banking/31798lea.htm

Unreal

An artifact that has increased or decreased in value since the time of purchase the entity can legitimately show that increase or decrease of potential value as part of its net worth if there is reason to do so.

Your example hardly fits any such criteria, since the original paintings purchased at great expense were reworked into something of such unique value that only the marketplace will tell the accountant what the asset is now worth.

Are suggesting that accounting is not a business strategy run subject to the double-entry book-keeping framework of rules? If that rule in commercial trade is gone, how long will it be before our court system has no way to prove a case of fraud? Will the criminal argue that “The assets in question were so exotic that I simply did the best that I could.”

Such a practice would explain today’s corruption if persons like yourself find it okay for accountants and auditors to not call out fraudulent practices based upon the rules of double-entry book-keeping as their guide. Your position seems to state that the accountant and the auditor can simply say, “I did the best I could in light of the complexity of the transactions.”

I understand that this is happening today, but one cannot brush it aside based upon the shallow book-keeping literature one finds in Wikipedia. To a person like me, who has practiced and studied the art for 30 years, the wikipage is a joke. It reflects that proper book-keeping is a lost art in today’s business culture. And our mess will not resolve itself in any durable way without our return to the proper book-keeping methods.

Well that is overstating it a bit but it goes something like this. You count it all from the front with your right hand fingers, and then you count it all from the back with your left hand fingers, and then you see how many right hand fingers have been counted and compare it to how many left hand fingers, and if the numbers match you feel more comfortable you are getting it all.

Now that some banks do not know what they have on their books, that has all to do with the difficulties of evaluating the asset than with accounting. Some of the assets are so exotic you even have to start with… “Is it an animal or a mineral?”

“Double-entry bookkeeping system ensures the integrity of the financial values recorded in a financial accounting system”

if this is true than NYT’s Gretchen Morgenson and others could not have reported for a long time now that banks do not know what is on their books. Thus I conclude there is something wrong with their accounting and if you want to mess up office procedures you’ll have best success when you fiddle with the very first steps.

also my own experience with claiming tax free travel expenses via a computer program taught me that there must have gone more than a few problems wrong with the transfer of the grass root level skills unto computers – even I who had been savvy on paper almost all her life with the pertinent tax law could not relate anything I saw on the screen to the law, also I was quite a savvy user then. It didn’t help me anything it read like a message from outer space. Maybe in the end the outcome applied to the law maybe there were gaps – who will ever know – but probably it was decided to wait for the next tax auditor to show up the gaps instead of providing a program that would have made sense – probably the estimate showed it would in the end be cheaper paying a tax penalty than doing a responsible job – who knows – by the time the auditor shows up no one will be able to remember a “guilty” person

That is a thousand times less risky than the capital requirements for banks based on risk which do not slow down any traffic but diverts the financial traffic into areas of interest exclusively to bank regulators, those contain a lower perceived risk of default.

If a were a progressive I would much more prefer those financial funds to be diverted not based on default risk but based on how useful they could be to society … like in decent job creation, adaptation and mitigation of climate change and what have you.

If I was a conservative I would hold let the markets be free markets without regulators building channels where funds must flow and allowing the land of the brave continuing to be brave and willing to take on risks which is what drives the world forward.

While on this I must express my surprise that regulators could have so much power to decide on their own that the banks if they invest in some activities need only 1.6 percent or even zero equity while if they invest in others they must come up with 8 percent or more. Talk about illegitimate “death-panels”!

Clearly there are a lot of computing and accounting problems in banking; like the delays in registering many of the derivative contracts and which clearly opens up the possibility of unknown risk positions of the banks; like the discussion on how to value assets mark to market and other; and with respect of the existence of sufficiently safe backup system so that we are not submerged into a paperless chaos.
But, with respect to confusions on double entry, there are none, in the real world, except of course for the normal confusion present in some introductory classes of accounting.

Want to know what double entry is? Go to Wikepedia… and move on.
http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system

oh and many thanks for the book title – will get to it once I’ll have reached the 15th century (am at the end of the 12th now)

Silke, Double-entry book-keeping was refined into practice 150 years before Pacioli documented the language in 1494. See Raymond de Roover’s Rise and Decline of The Medici Bank.

Double-entry book-keeping was in common use in Italy when Pacioli documented the language for the Catholic Church. The church was interested in extending its reach through an international banking system. That system needed book-keeping in order to work.