Friday, July 30, 2021

Rescue of Rich

 

When Government Pay for Rich, Poor get Poorer - This is called capitalism

 

U.S. poverty totals hit a 50-year high

The government’s efforts to save the banks is basically paying poor people's money ( stealing and extorting) and giving it to rich to enjoy life. The whole exercise of QE1 and QE2 are just efforts in saving the funding lobbies and their interest so that they can get funding for next elections.

All these easing has made life more difficult for the poor. It has made basic staple food affordability not only in poor countries but also in USA. More than 15% are poor who can have healthcare, housing and education.

 

Soaring Poverty Casts Spotlight on 'Lost Decade'

 

Reporting from Washington—

In a grim portrait of a nation in economic turmoil, the government reported that the number of people living in poverty last year surged to 46.2 million — the most in at least half a century — as 1 million more Americans went without health insurance and household incomes fell sharply.



 


The poverty rate for all Americans rose in 2010 for the third consecutive year, matching the 15.1% figure in 1993 and pushing many younger adults to double up or return to their parents' home to avoid joining the ranks of the poor.

Taken together, the annual income and poverty snapshot released Tuesday by the U.S. Census Bureau underscored how the recession is casting a long shadow well after its official end in June 2009.

The number of poor children younger than 18 reached its highest level since 1962, said William Frey, a demographer at the Brookings Institution.

 

Poverty reached a record high for Latino children, who Frey said accounted for more than half the overall increase in poor children last year.

Blacks had the highest child poverty rate at 39%, up more than 3 percentage points from last year.

Overall, poverty was generally higher than the national rate in states with high unemployment and in the South. Mississippi had the highest poverty rate last year, at 22.7%, and New Hampshire had the lowest, 6.6%.

 

Overall, the number of 25- to 34-year-old men and women who were living with their parents last spring totaled 5.9 million — a 25.5% increase since the recession began in 2007.

The census report, coming shortly after President Obama unveiled a proposed $447-billion package of tax cuts and spending to revive job growth and the recovery, was seen as intensifying the debate over the government's role in helping the poor and unemployed at a time of budget deficits and painful cutbacks in public services.

 




JP Morgan Chief Says Bank Rules 'Anti-US'

 

America Should Pull Out of Basel - Because they are Anti American

America is Out of Kyoto - Because they are Anti America

America is Out of ICC - It is illegitimate

What suits to America is Americanism - What suits to World and Principle of Justice is Anti America - This is what exactly Americanism

 

EU-US Economies - Will Another Lehman-Style Crisis Be Prevented? - CNBC

No it is not possible. The crisis cannot be prevented. When we look at present situation not much has been changed and the causes of the previous collapse are still existent in the market.

          Too Big to Fail -- The companies which were affected and needs rescue have become bigger, the systematic risk of collapse of the system has not removed or reduced, over the years it has increased.

          Off Balance Sheet Transaction - Derivatives and swaps are there and nobody really knows how much each of them owe. How much risk or swaps or derivatives they have played. Derivatives are still off balance sheet and not governed by the Financial Authorities.

          Toxic assets are still there on the balance sheet sitting and looking pretty beautiful. No one knows how much toxic each of them has and what is its worth.

          Credit Rating Agencies are same, methods are same and methodology is the same. They are still beyond control and again started playing the dirty game.

          Auditors are same - they have not changed their behavior and practices. They are not controlled and supervised.

          Housing is going down, mortgage is under water and bond for them are in market.

 

Corona Relief -The Governing Council decided the following:

(1) To launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.

This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP).

A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP.

The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year.

The Governing Council of the ECB is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments.

 


As central banks implement coronavirus rescue plans, has moral hazard been forgotten?

 

One of the most important challenges facing a central bank (CB) when it must act as a lender-of-last-resort to stabilize a financial crisis is to avoid fostering moral hazard. This trap occurs when market participants perceive little-to-no consequences for potentially excessive risk taking, as they come to believe that they will be protected should things go awry. Quick and decisive action by major CBs has stabilized international financial markets during the pandemic downturn, setting the stage for a broad economic recovery.

But coming on the heels of large-scale CB accommodation during the 2008-2009 Global Financial Crisis (GFC), officials have reinforced the market’s belief that CBs will time and time again take policy measures to protect financial markets from widespread losses.

Having learned from the positive impacts of their actions during the GFC, major central banks quickly jumped into action to stabilize the situation when international financial markets plunged in March as the COVID-19 pandemic struck. The US Federal Reserve (Fed) implemented huge securities purchase programs, some without limits, going beyond US treasuries and agencies to buy corporate bonds including those below investment grades (which CBs traditionally do not touch).




The Fed also offered credit facilities to many market players, including money market funds and corporations. Importantly, in response to the US dollar funding crisis among non-US banks, the Fed arranged currency swap lines with several major central banks and US Treasury repurchase agreement lines with many other monetary authorities. As a result, the Fed balance sheet quickly increased from $4.2 trillion in February to a peak of $7.2 trillion in mid-June.

Similarly, the European Central Bank (ECB) launched a €750 billion Pandemic Emergency Purchase Program, later increasing it by another €600 billion. Under these programs, the ECB can purchase government and corporate bonds in member countries, without previous constraints on how much it can acquire in each member country. Consequently, the ECB balance sheet has increased from €4.7 trillion in mid-April to €5.6 trillion in June.

 

Timely central bank actions have helped international equity markets recover most of the 30 to 40 percent losses suffered in February and March. Portfolio capital flows have more than reversed their earlier net outflows from risk assets. Borrowers including those below investment grades have been able to issue significant volumes of bonds. For example, global corporations have issued more than $6.4 trillion of bonds—on course to reach a record high this year. Emerging market sovereigns have also issued $123.5 billion of hard currency bonds in the first half of the year.

But the swift recovery of financial markets seems to be at odds with the underlying economic reality—where unemployment remains widespread and bankruptcies remain quite elevated. Moreover, financial market buoyancy is persisting even as the Fed balance sheet has shrunk from $7.2 trillion to $6.9 trillion in late July; and the ECB balance sheet has also declined modestly in recent weeks—reflecting investors’ reduced reliance on CB support. This is a clear indication of moral hazard at work. Markets no longer need central banks to add liquidity to do well; all they require is just the conviction that CBs are there ready to provide support when needed. While providing breathing room in the short term, this expectation of CBs coming to the rescue will likely lead to continued risk taking by the market, which could threaten future financial bubbles and stability risks.




Another manifestation of moral hazard is the fact that plentiful CB liquidity and low interest rates continue to sustain most companies, including unproductive ones. The number of zombie companies—those generating insufficient profits to pay interests on their debt— has noticeably risen as a share of the corporate universe. According to Deutsche Bank Securities, zombies currently make up 20 percent of US companies, having doubled since 2013. The share of zombies in Europe is likely similar given that in 2016, a BIS study estimated the zombie share at 12 percent for fourteen advanced economies under study (mostly in Europe). The United States and Europe could be falling into the same trap Japan did three decades ago, when the country kept zombie companies alive with easy financing conditions so that their share reached almost 35 percent in the mid-1990s, ushering in decades of slow growth.

 

Federal Reserve's $3 trillion virus rescue inflates market bubbles

The Federal Reserve’s $3 trillion bid to stave off an economic crisis in the wake of the coronavirus outbreak is fuelling excesses across U.S. capital markets.

The U.S. central bank has pledged unlimited financial asset purchases to sustain market liquidity, increasing its balance sheet from $4.2 trillion in February to $7 trillion today.

While the vast majority of these purchases have been limited to U.S. Treasuries and mortgage-backed securities, the Fed’s pledge to bolster the corporate bond market has been enough to spur a frenzy among investors for bonds and stocks.




Global Poverty and Increasing Wealth of Rich

 

Richest 1% now owns half the world’s wealth

The wealthiest 1 percent of the world’s population now owns more than half of the world’s wealth, according to a new report.

The total wealth in the world grew by 6 percent over the past 12 months to $280 trillion, marking the fastest wealth creation since 2012, according to the Credit Suisse report. More than half of the $16.7 trillion in new wealth was in the U.S., which grew $8.5 trillion richer.

But that wealth around the world is increasingly concentrated among those at the top.

Are 26 billionaires worth more than half the planet? The debate, explained.

Here’s a wild statistic: The 26 richest people on earth in 2018 had the same net worth as the poorest half of the world’s population, some 3.8 billion people.




World's Richest 1 Percent Own Twice as Much as Bottom 90 Percent

The more than twenty-one hundred billionaires globally own more of the world's wealth than the 4.6 billion people at the bottom of the global wealth pyramid, a report from Oxfam International finds.

According to the report, Time to Care: Unpaid and Underpaid Care Work and the Global Inequality Crisis (64 pages, PDF), the number of billionaires globally has doubled over the last decade, while the richest 1 percent have accumulated twice as much wealth as 90 percent of the global population, some 6.9 billion people. And global wealth inequality is worsening, in part because billionaire portfolios have enjoyed an average annual return of 7.4 percent over the last ten years — helped by low taxes and a 31 percent increase in dividends to shareholders — even as the average wage in G7 countries rose only 3 percent. Evidence of "a flawed and sexist economic system" is everywhere, the report's authors write.

 

The world’s 2,153 billionaires have more wealth than the 4.6 billion people who make up 60 percent of the planet’s population, reveals a new report from Oxfam today ahead of the World Economic Forum (WEF) in Davos, Switzerland.

Global inequality is shockingly entrenched and vast and the number of billionaires has doubled in the last decade. Oxfam India CEO Amitabh Behar, who is in Davos to represent the Oxfam confederation this year said: “The gap between rich and poor can't be resolved without deliberate inequality-busting policies, and too few governments are committed to these.”

“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said.





Fight inequality, beat poverty

Eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity, according to a new report published by Oxfam today to mark the annual meeting of political and business leaders in Davos.

Oxfam’s report, ‘An economy for the 99 percent’, shows that the gap between rich and poor is far greater than had been feared. It details how big business and the super-rich are fuelling the inequality crisis by dodging taxes, driving down wages and using their power to influence politics. It calls for a fundamental change in the way we manage our economies so that they work for all people, and not just a fortunate few.

New and better data on the distribution of global wealth – particularly in India and China – indicates that the poorest half of the world has less wealth than had been previously thought.  Had this new data been available last year, it would have shown that nine billionaires owned the same wealth as the poorest half of the planet, and not 62, as Oxfam calculated at the time

 

25 richest Americans paid little to nothing in federal income taxes: Report

 

The 25 richest Americans, including Jeff Bezos, Michael Bloomberg and Elon Musk, paid relatively little — and sometimes nothing — in federal income taxes between 2014 and 2018, according to an analysis from the news organization ProPublica that was based on a trove of Internal Revenue Service tax data.

The analysis showed that the nation’s richest executives paid just a fraction of their wealth in taxes — $13.6 billion in federal income taxes during a time period when their collective net worth increased by $401 billion, according to a tabulation by Forbes.

The documents reveal the stark inequity in the American tax system, as plutocrats like Mr. Bezos, Mr. Bloomberg, Warren Buffett, Mr. Musk and George Soros were able to benefit from a complex web of loopholes in the tax code and the fact that the United States puts its emphasis on taxing labor income versus wealth.

 




Top US Companies Pay No Income Tax

 

At least 55 of the largest corporations in America paid no federal corporate income taxes in their most recent fiscal year despite enjoying substantial pretax profits in the United States. This continues a decades-long trend of corporate tax avoidance by the biggest U.S. corporations, and it appears to be the product of long-standing tax breaks preserved or expanded by the 2017 Tax Cuts and Jobs Act (TCJA) as well as the CARES Act tax breaks enacted in the spring of 2020.

The tax-avoiding companies represent various industries and collectively enjoyed almost $40.5 billion in U.S. pretax income in 2020, according to their annual financial reports. The statutory federal tax rate for corporate profits is 21 percent. The 55 corporations would have paid a collective total of $8.5 billion for the year had they paid that rate on their 2020 income. Instead, they received $3.5 billion in tax rebates.

Their total corporate tax breaks for 2020, including $8.5 billion in tax avoidance and $3.5 billion in rebates, comes to $12 billion.

This report is based on ITEP’s analysis of annual financial reports filed by the nation’s largest publicly traded U.S.-based corporations in their most recent fiscal year. All data presented here come directly from the income tax notes of these reports. Some companies with unusual fiscal years have not yet filed such reports. Some publicly traded corporations paid nothing on profits in their most recent fiscal year but are not included in this report because they are not part of the S&P 500 or Fortune 500.

No-Tax Corporations Continue a Decades-Long Trend

For decades, the biggest and most profitable U.S. corporations have found ways to shelter their profits from federal income taxation. ITEP reports have documented such tax avoidance since the early years of the Reagan administration’s misguided tax-cutting experiment. A widely cited ITEP analysis of an eight-year period (2008 through 2015) confirmed that federal tax avoidance remained rampant before the TCJA.

Now, with most corporations reporting their third year of results under the new corporate tax laws pushed through by President Donald Trump in 2017, it is crystal clear that the TCJA failed to address loopholes that enable tax dodging—and may have made it worse.

The companies avoiding income taxes in 2020 represent very different sectors of the U.S. economy:

Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax income last year and received a federal tax rebate of $164 million.

The delivery giant FedEx zeroed out its federal income tax on $1.2 billion of U.S. pretax income in 2020 and received a rebate of $230 million.

The shoe manufacturer Nike didn’t pay a dime of federal income tax on almost $2.9 billion of U.S. pretax income last year, instead enjoying a $109 million tax rebate.

The cable TV provider DISH Network paid no federal income taxes on $2.5 billion of U.S. income in 2020.

The software company Salesforce avoided all federal income taxes on $2.6 billion of U.S. income.

 

The U.S. income, current federal income tax and effective tax rates in 2020 for all 55 of the zero-tax companies are shown in the following table.

 

Analysts determined that the 55 companies, all part of the S&P 500 or Fortune 500, would have paid a combined total of $8.5 billion last year if they had paid at a 21% rate (the statutory federal corporate tax rate) on their profits.

Not only did they avoid paying any taxes on their profits, but these companies also received $3.5 billion in tax rebates, according to ITEP, a left-leaning, non-profit research group that analyzed each firm’s annual financial reports.

 

Thursday, July 29, 2021

Who Crash Landed Indian Aviation

 

The Crash of Indian Aviation Sector

·       East West Airline

First Private Sector Airline

Who Killed Takeeuddin Abdul Waheed – The owner of East West Airline – Is this case of Corporate Rivalry.

Wahid was the managing director of East-West Airlines, the first private scheduled airline to begin service after liberalization. Wahid hailed from Edava near Varkala in Thiruvananthapuram district. He was killed in Mumbai when he was about to go home after a day at work.

East-West Airlines, which commenced services in 1992, shut down in 1996 after his murder.

 




Air Deccan

 

In the summer of 2005, retired army officer-turned-businessman GR Gopinath announced that he would enable Indians to fly at one rupee or less than a cent.

It was an incredulous sales pitch from the founder of the country's first budget airline.

Air Deccan, his then two-year-old no-frills airline modelled on European budget carriers like EasyJet and Ryanair, had already made flying affordable to millions of Indians. Capt Gopinath's tickets cost half of what competitors charged.

Now his airline introduced "dynamic pricing" where a small number of "early bird" customers could travel at a rupee. Latecomers would pay a higher ticket price, which would still be substantially lower than competitors. Not surprisingly, booking counters were overrun with customers, many of them first-time fliers. Critics howled such pricing methods would wreck the industry.

"The one-rupee ticket fired the imagination of the people and quickly became a buzzword," wrote Capt Gopinath in his memoir. He believed his airline had not "only broken the price barrier, but India's caste and class barrier to flying"

 


 

Jet and sahara

In the dynamic world of Indian aviation, failure of the $500-million plan to merge Jet Airways with Air Sahara has introduced a series of new twists and turns.

Explained: The rise and fall of private airlines

The suspension of operations at Jet Airways — at one time India’s largest private airline —  follows the troubles at Kingfisher, Air Deccan, and Sahara. A short history of hope and distress in a highly competitive market over the last 30 years.

Policy changes came in the 1990s — and liberalization and economic reforms gave the private aviation industry new wings of hope.

.

The beginnings

Founder promoter Naresh Goyal’s Jet Airways was one of the first private airlines in newly liberalised India. In 1993

Start-stop-start

Besides repealing The Air Corporation Act, the government announced an Open Skies policy in 1992, liberalising rules and regulations to open up the commercial aviation market. This led to the birth, over the next decade or so, of private sector players including ModiLuft, Damania Airways, Air Sahara, and East-West Airlines. Most of these new players, however, folded up soon or were merged — Jet Airways in contrast, stood out as an efficient private sector operator, gaining market share with each passing year.

 East-West

ModiLuft and East-West ceased operations in 1996. Air Sahara, which started operations in 1993 as Sahara Airlines, was acquired by Jet in 2007 — a business move that many analysts argue marked the beginning of the company’s troubles.

ModiLuft, which had an excellent record for three years until it shut down in 1996, was later acquired by Ajay Singh, who launched it as SpiceJet in 2005 along with NRI businessman Bhulo Kansagra. As SpiceJet faced difficulties, Kansagra sold his stake to US distress investor Wilbur Ross in 2008, who sold it to Sun Group’s Kalanithi Maran a couple of years later. The airline was teetering on the verge of closure when it was again acquired by Ajay Singh in 2015, who turned it profitable.

Boom and bust

The real expansion of the private airlines, and the number of domestic flyers in India, started in the 2000s. In 2003, Captain G R Gopinath started the country’s first low-cost carrier Air Deccan, which was followed by the launch of SpiceJet, IndiGo and GoAir. All these carriers followed the model of no-frills, cheaper tickets, and higher passenger load factors.

 Damania airlines

The LCC (low-cost carrier) model revolutionized the Indian aviation sector, pushing the country’s annual passenger growth rate to double digits. Alongside the LCCs, Kingfisher Airlines started operations in 2005, pitching itself in the middle of a no-frills and a full-service carrier. These new airlines posed a formidable challenge to Jet Airways, which had so far operated largely in a duopoly with state-owned carriers Air India and Indian Airlines (which were merged in 2011).




But the situation changed soon.

Air Deccan faced extreme financial difficulties and was bought by Kingfisher in 2007. However, Kingfisher itself went belly-up in 2012, while SpiceJet faced intermittent headwinds. Jet, which had a 44% share of the domestic passenger market in 2003-04, steadily lost ground — in February this year, the deeply troubled airline had only 10% of the domestic market share, fourth behind IndiGo (43.4%), SpiceJet (13.7%) and Air India (domestic, 12.8%), according to government data. In all these years, IndiGo stood out as the only carrier that improved its market share and financial performance.

In December 2004, the government announced a major policy change, allowing Indian scheduled carriers with a minimum five years’ continuous operations and a minimum of 20 aircraft (the so called 5/20 rule) to fly international routes. Jet was the key beneficiary of this policy change. In 2016, the government scrapped the 5/20 rule and replaced it with 0/20, enabling SpiceJet, IndiGo and GoAir to launch international flights in the following years.

TATA GROUP

challenges The Tata Group faced in getting approvals to start their own airline company in the 1990s. The regulatory struggle which began during the regime of Prime Minister PV Narasimha Rao continued during the regime of Prime Minister HD Deve Gowda. Innumerable bureaucratic hurdles continued to surface one after the other. In the light of the current scenario of India's civil aviation industry - where Jet Airways has closed its operations, Air India is up for sale, and legal agencies are exploring the inconsistencies that caused the downfall of India's state carrier, this story becomes even more interesting and topical. It tells us how India as a nation would have benefited if the governments of those decades had prioritized citizen well-being over political expedience in their decision making.

When Prime Minister Deve Gowda attended the World Economic Forum at Davos with Finance Minister P. Chidambaram in 1996-97, among other questions, they were asked about the ‘stop-go-stop’ status of the Tata-Singapore Airlines (SIA) venture. Their answer was that it was ‘being considered’. It would have been a diplomatic faux-pas to say anything else at a venue that was meant to project India as an attractive destination for foreign investments. 

 

In the Union Cabinet Meeting held in April 1997, Finance Minister P. Chidambaram, Industry Minister Murasoli Maran and Foreign Minister Inder Kumar Gujral endorsed the clearance of the Tata-SIA proposal. However, Civil Aviation Minister Ibrahim had supposedly brought with him papers from four unions belonging to Indian Airlines, which threatened to go on strike if the Tata Airlines proposal was accepted. He contended that workers’ interests must be protected. The Prime Minister conceded to this concern and laid the proposal to rest.

Later that month, a formal rejection letter was sent to the Tata Group citing inconsistencies in the proposal with the civil aviation policy.

There were strong mutterings in the media that the aviation minister had altered the aviation policy at Naresh Goyal’s behest to upset Tatas’ aviation dreams. M.K. Kaw, civil aviation secretary under Minister Ibrahim, acknowledged this in his autobiography (An Outsider Everywhere),

‘The minister did not clear the file, despite several attempts on my part. The history of civil aviation in this country would have taken a different trajectory if Tata-SIA had been allowed to float an airline.’ 

A bumpy ride

In 1990s, Air India’s market share steadily declined, and losses mounted. Between 1995 and 1997, it reported consolidated losses of ₹671 crores. When the Atal Bihari Vajpayee-led Government came to power in 1998, it initiated a major disinvestment programme under Minister Arun Shourie. In 2001, a decision on divesting 40% stake in Air India was taken. Given its long and rich experience, the Tata Group was specifically encouraged to participate in the process. The national carrier was an attractive investment proposition because of its lucrative slots at key Indian and international airports, flying rights to global destinations, its fleet size and market share. Tatas were interested in exploring the opportunity and collaborated with SIA to study the feasibility. Its findings revealed that robust middle level managers at Air India would be an asset in turning around the enterprise. SIA and Tata Sons offered to take 20% stake each in Air India. 

When their joint proposal emerged as sole bidders, it was almost a done deal. Yet, once again, there was an uproar. Virulent attacks by rival airline lobbyists and opposition from labour unions marred the atmosphere. Discomforted by these developments, Singapore Airlines withdrew its participation. It offered to assist the Tatas as technical advisors without any equity stake. That too cut no ice with decision makers. Tatas entry into the airline sector was successfully stonewalled one more time. [i]

 

 I am therefore taking the decision to withdraw our application.’ A decade later, in 2010, while addressing the Tenth Foundation Day of Uttarakhand at Dehradun, he shared a conversation he had with a fellow industrialist during the days when Tatas had applied for the airline. ‘You are stupid people. The Minister was asking for ₹15-crore. Why didn’t you pay the money?’ the industrialist chided Mr Tata.

‘I did not want to go to bed knowing well that I set up an airline by paying ₹15-crore as a bribe,’ was Mr Tata’s reply.

He regretted that despite being a pioneer in Indian aviation, Tata Group faced enormous problems in gaining approvals for a domestic airline. ‘We approached three Prime Ministers. But an individual thwarted our efforts to form the airlines,’ he admitted in public. He did not name the individual, though the grapevine pointed the needle to Jet Chairman Goyal. On another occasion he confessed, ‘It is not that we were thwarted that bothers me, but that vested interests combined to deny the country the benefit of a world-class competitive airline.’  

A new Sunrise

As for Air India, it had succeeded in accumulating losses of ₹50,000 crores and a debt of ₹55,000 crores by March 2018, a disdainful drain on the honest taxpayers’ money that could have been invested in vital social sector schemes. Besides the huge debt, some of the key problems plaguing the airline included routing and network issues, lack of decisive leadership, managerial complications, and internal incompatibility between the merged airlines. In his autobiographical account, M.K. Kaw regretted that the history of civil aviation in India had been a story of shameless exploitation and ruthless corruption. He called it ‘a fascinating saga of benami ownership of airlines, demands for bribes, destruction of rival airlines one-by-one, unwarranted purchase of aircraft, mismanagement of bureaucrats and politicians, free jaunts on inaugural flights, subsidized travel for many categories of travelers, VVIP flights, Haj flights and so on.’

By early 2019, Jet Airways faced operational closure; many observers calling it Karma coming a full circle. India’s characteristic Maharaja was on sale, yet no one wanted to acquire the once iconic brand that symbolized world-class air travel. Interestingly, Vistara was the only commercially successful full-service airline operating in India’s civil aviation space…  

Notes:

 

Role of E&Y in Scams and Fraud

 

EY accused of actively concealing NMC Health audit fraud from investors

 

·       EY Hidden and Manipulated account of NMC up to 6 billion USD.

This is not first time EY is accused of Manipulation and scam. In 2020, itself it is 3rd case, where EY been accused of corruption.

NMC Health, the former FTSE 100 healthcare group, collapsed this year after discovering that more than $4bn was apparently hidden from its balance sheet in a large-scale fraud that spanned operations from Abu Dhabi to London.

EY has overseen NMC’s accounts since the healthcare company floated in London in 2012.

The quality of the firm’s audits has already been questioned due to the fact that NMC’s board included former EY partners.

·       Two Scandals Wirecard AG and Luckin Coffee, auditor is common EY. Where EY failed to fulfil its responsibilities.

These two companies have one other thing in common beyond their recent involvement in high profile accounting scandals – it turns out that both companies’ auditor was Ernst & Young, as was the case with several other companies involved in recent scandals.




As discussed in an October 17, 2020 Wall Street Journal article entitled “String of Companies That Imploded Have Something in Common: Ernst & Young Audited Them” (here), a number of EY audit clients have faced financial issues in recent months, raising questions whether there is something about EY’s audit approach that contributed to the problems or allowed the problems to happen.

 The 1.9 billion euros ($2.1 billion) missing from Wirecard’s balance sheet brought the chief executive officer’s arrest, the German payments firm’s insolvency filing and a lot of finger-pointing.

Financial data is manipulated to show nonexistent earnings. Common ways to cook the books include delaying expenses, accelerating revenues, off-balance sheet items, and nonrecurring expenses.

·       EY – and Lehman Collapse

One of the largest investment companies in the world suddenly vanished, filing bankruptcy that impacted our world today. Lehman Brothers were at the top of the charts; or at least that is what was portrayed in the media. The white collar crime that lost hundreds of billions of dollars has been inexistent, but still an unforgettable tragedy that effected the lives of so many.

The questions that must be resolved are what factors led to the Lehman Brothers’ financial crisis? What was Ernst & Young’s involvement and how did they cease to hide the facts behind Lehman Brothers’ downfall?

Lehman Brothers were one of the five largest U.S. investment companies, however on September 15, 2008, the company filed for bankruptcy.




The unpredictable collapse occurred because of several cover-ups and false information that was presented by Lehman Brothers along with the participation of one of the top accounting firms, Ernst & Young. With the assistance of the accounting firm, Lehman Brothers were able to cover up any issues that had been occurring for at least a few years.

These aspects all concluded with the involvement of Ernst and Young, by allowing the executives to manipulate these reports and not doing anything to stop it.

Ernst and Young obviously did not show any type of seniority over the Lehman Brothers by signing off and not auditing millions of fraud reports.

The firm knowingly approved the removal of billions of dollars in debt within Lehman’s quarterly reports (Freifeld, 2015). By affiliating with this scandal, Ernst & Young found themselves in a “massive accounting fraud”, leaving them with several white collar cases throughout the past seven years.




The Enron scandal of 2001 

When people mention an accounting scandal, often the Enron scandal and bankruptcy of 2001 come to mind. It was one of the most highly publicized scandals in accounting history. The big players in the scandal were CEO Jeff Skilling and CEO Ken Lay. The duo decided to keep big debts off the balance sheet. As the stock prices soared, suspicions increased. Ultimately, internal whistleblower Sherron Watkins caught the culprits. Employees lost their jobs, many investors and employees lost their retirement accounts, and shareholders lost $74 billion. Arthur Andersen was found guilty of manipulating Enron's accounts. Skilling got 24 years in jail, and Lay died before serving any prison time. 




The WorldCom scandal of 2002 

Just one year after Enron made headlines, people found out about the WorldCom Scandal of 2002. Telecommunications company WorldCom is now known as MCI, Inc. CEO at that time, Bernie Ebbers, inflated revenues with false accounting entries and under-reported line costs. The company's internal auditing department uncovered a significant $3.8 billion in fraud. Assets were inflated by up to $11 billion, leading to 30,000 lost jobs. And investors lost about $180 billion. The CFO was fired, and the controller resigned. Ebbers got 25 years in prison based on charges of fraud, filing false documents, and conspiracy. Weeks after these renowned and costly scandals, the United States Congress passed the Sarbanes-Oxley Act, the most detailed set of business regulations since the 1930s. 

The Bernie Madoff scandal of 2008 

The Bernie Madoff scandal was another famous accounting scandal in 2008. This highly publicized scandal focused on the Wall Street investment firm founded by Madoff, Bernard L. Madoff Investment Securities LLC. Investors were duped out of $64.8 billion in the most massive Ponzi scheme in history. The top players in this scandal were Madoff, his accountant David Friehling, and Frank DiPascalli. The company paid returns to investors out of their own money or money from other investors rather than from profits. Ironically, Madoff was caught when he told his sons about his scam, and they reported him to the SEC. Madoff was arrested the next day and faced 150 years in jail with $170 billion restitution. Friehling and DiPascalli also got jail time. Many recall 2008 marked the U.S. financial collapse, making this a notable year in accounting history. 

The Olympus scandal of 2011 

The Olympus scandal of 2011 was one of the biggest accounting scandals of the decade. The length of the fraud is what astounded everyone about this well-known international camera corporation. Michael Woodford, the company British chief executive, blew the whistle on inexplicable fees paid during acquisitions. The fraud totaled $1.7 billion. It was discovered the previous corporate management had buried losses since the 1990s. Acquisitions were used to cover up losses on poor investments, and the corporation had been deferring losses for over two decades. Former chairman Tsuyoshi Kikukawa, and two other executives received suspended prison sentences and one of the company advisers went to jail for four years. 

For decades, it was challenging to bring accounting scandals to light. In 1939, Kenneth McNeal wrote, “Trust in Accounting,” which evidences the poor accounting procedures of those times. In the 1960s and 1970s, various scandals arose but attracted little attention. By the new millennium, fraudsters became overconfident, got caught, and faced severe penalties. 

 

Tuesday, May 18, 2021

Comparison Islamic Accounting and Conventional Accounting

 

Differences between Islamic accounting and Conventional Accounting

To professional accountants and those who have received a conventional accounting education and who have been brought-up  on the idea of accounting as an ‘objective’, technical and value-free discipline, the idea of attaching a religious adjective to accounting may seem to be embarrassing and  unprofessional.



On the other hand, the development of Islamic banking and finance now embraced even by ardent capitalist institutions such as Citibank, HSBC and ANZ banks may interest accountants and other job seekers to the possibility of new opportunities in this new discipline.  Perhaps, the Enron affair has rekindled an interest in having a more honest profession who truly care about the public interest in addition to their pockets. Whatever the interest or curiosity, we hope readers will find this chapter (and hopefully the entire book) interesting, informative, and profitable and yes we hope it may even lead to a bit of soul searching.




·       Meaning of Islamic Accounting

Islamic accounting can be defined as the “accounting process” which provides appropriate information (not necessarily limited to financial data) to stakeholders of an entity which will enable them to ensure that the entity is continuously operating within the bounds of the Islamic Shari’a and delivering on its socioeconomic objectives. Islamic accounting is also a tool, which enables Muslims to evaluate their own accountabilities to God (in respect of inter-human/environmental transactions).




The above diagram illustrates the purpose of Islamic accounting. Muslims believe in the hereafter. All business activities should be in line with the shari’a or Islamic law, including business. In life, people transact through institutions such as business. These activities are classified, recorded and summarized using a philosophic filter (shari’a and Islamic accounting standards) to produce accounting statements, which people act on. If the information produced is useful and appropriate to make economic or social decisions through a moral framework, then the users will act in ways to correct their ‘sins’ and increase good behaviour leading to God’s pleasure in the hereafter. If the accounting information system misinforms or does not provide appropriate information, the business might be undertaking sinful activities, the responsibility for which will be borne by the investor as he is a participant. This may lead him to Hell.

The meaning of Islamic accounting would be clearer if we compare this with the definition of “conventional” accounting.  (Conventional) accounting as we know is defined to be the identification, recording, classification, interpreting and communication economic events to permit users to make informed decisions (AAA, 1966). From this, it can be seen that both Islamic and conventional accounting is in the business of providing information. The differences lie in the following:

Ø  The objectives of providing the information

Ø  What type of  information is identified,  and how is it   measured and valued, recorded and communicated, and

Ø  To whom is it communicated (the users)

Conventional accounting aims to permit informed decisions by users, whose ultimate purpose is to efficiently allocate scarce resources available to their most efficient (and profitable) uses by providing information efficiency in the market (FASB, 1978). Apparently this is achieved by the user making the appropriate, buy, sell or hold decisions on their investments. Islamic Accounting, on the other hand, hopes to enable users to ensure that Islamic organisations (whether business, government or NFP) abide by the principles of the Shari’a or Islamic Law in its dealings and enables the assessment of whether the objectives of the organisation are being met. At the very basic level, it can be said that Islamic organisations (whether business or otherwise) differ from their conventional counterparts by having to adhere to certain Shari’a principles and rules and also try to achieve certain socio-economic objectives encouraged by Islam.

Following from the above, the type of information which Islamic accounting identifies and measures is different. Conventional accounting concentrates on identifying economic events and transactions, while Islamic accounting must identify socio-economic and religious events and transactions. Older accountants may still remember when they  first learnt accounting. They had to prepare final accounts (i.e. balance sheet and profit and loss account). However, Americanization of the curriculum has popularised the term financial statements. Hence, the concentration of accounting has moved from stewardship based manorial accounts to accounting for money (accentuated by the monetary measurement concept).




This is not to say that Islamic accounting is not concerned with money (especially when accounting for businesses). On the contrary due to prohibition of interest-based income or expense, profit determination is more important in Islamic accounting than conventional accounting. However, Islamic accounting must be holistic in its reporting. Hence, both financial and non-financial measures regarding the economic, social, environmental and religious events and transactions are measured and reported. 

Conventional accounting mainly uses historic cost (or lower) to measure and values assets and liabilities (although the new IFRS seeks to introduce fair value measurements). The profession is well aware of the limitations of the stable unit of measure assumption of the monetary unit and to its credit has tried in the past in its inflation accounting initiatives. However, despite recommendation from its own research efforts (True blood committee?), the idea of using current values was given up due to its complexity and presumed lack of verifiability. From an Islamic point of view, at least for the purpose of computation of Zakat, current valuation is obligatory (see for example, Clarke et al, 1996) prompting calls for a current value Balance Sheet (Baydoun and Willet, 2000).

A further difference is, Islamic accounting may require a different statement altogether to deemphasize the focus on profits by the income statement provided by conventional accounting. Baydoun and Willlet (2000) have suggested a Value Added Statement to replace the Income Statement in Islamic Corporate Reports. They argue that this shows and encourages a cooperative environment in business as opposed to a destructive competitive environment.

The third category of differences is in the users of the information. Although the profession has recognised various stakeholders as users of accounting information (see for example, the Corporate Report, 1975), the users which it focuses on are shareholders and creditors (i.e. Financiers – those who provide the funds). This is obvious from the fact the FASB’s SFAC 1 dismisses a whole range of stakeholders by the term “and others”. From recent developments in finance and financial markets, accounting seems to be serving an elite group of financiers – market players and banks and other financial institutions. It has been accused of helping a group of rich people get richer (Gray et al., 1996)- a grave charge since the profession always justifies its monopoly on audit services by virtue of  the public interest.





Islamic accounting serves the whole gamut of stakeholders. Society as a whole can make corporations accountable for their actions and ensure they comply with Shari’a principles and do not harm others while making money ethically and achieve an equitable allocation and distribution of wealth among members of society especially the stakeholders of the concerned corporation.