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(273)The Inferno of the Finance Director

 

Sometimes, I harbour a suspicion that Dante was a Financial Director. His famous work, "The Inferno", is such an accurate description of the job that it cannot be otherwise. He is fervently hated by the workers. He is thoroughly despised by the other managers ("mean bastard" is his common nickname among them, mostly for scrutinizing their expense accounts). He is dreaded by the owners of the firm because the powers that he has often outweigh theirs. Shareholders hold him responsible in annual meetings. When the financial results are good – they are attributed to the talented General Manager. When they are bad – the Financial Director gets blamed for not enforcing budgetary discipline. It is a no-win, thankless job. Very few make it to the top and the rest retire, eroded and embittered.

The job of the Financial Director is composed of 10 elements. Here is a universal job description which is common throughout the West. Macedonia, as usual, is a special case and so I added my own, humble observations.

In the USA there is a function called the Chief Financial Officer. This is the most senior financial manager in the firm and henceforth we will use this title in our article.

Organizational Affiliation

The Chief Financial Manager (CFO) is subordinated to the Chief Executive Officer, answers to him and regularly reports to him.

The CFO is in charge of:

The Finance Director

The Financing Department

The Accounting Department which answer to him and regularly report to him.


Despite the above said, the CFO can report directly to the Board of Directors through the person of the Chairman of the Board of Directors or by direct summons from the Board of Directors.

In Macedonia this would be considered treason – but, in the West every function holder in the company can – and regularly is – summoned by the (active) Board. A grilling session then ensues: debriefing the officer and trying to spot contradictions between his testimony and others. The structure of business firms in the USA reflects the political structure. The Board of Directors resembles Congress, the Management is the Executive Arm (President and Administration), the shareholders are the people. The usual checks and balances are applied: the authorities are supposedly separated and the Board criticizes the Management.

The same procedures are applied: the Board can summon a worker to testify – the same way that the Senate holds hearings and cross-questions workers in the administration. Lately, however, the delineation became fuzzier with managers serving on the Board or, worse, colluding with it. Ironically, Europe, where such incestuous practices were common hitherto – is reforming itself with zeal (see Britain and Germany).

Macedonia is still after the cosy, very old European model: Boards of Directors are rubber stamps, devoid of any will to exercise their powers. They are staffed with cronies and friends and family members of the senior management and they do and decide what the General Managers tell them to do and to decide. General Managers – unchecked and unbalanced – get themselves involved in colossal blunders (not to mention worse things). The concept of corporate governance is alien to most Macedonian firms and the companies are regarded by most general managers as milking cows – fast paths to personal enrichment.

Functions of the Chief Financial Officer (CFO):

(1) To regulate, supervise and implement a timely, full and accurate set of accounting books of the firm reflecting all its activities in a manner commensurate with the relevant legislation and regulation in the territories of operations of the firm and with internal guidelines set from time to time by the Board of Directors of the firm.

This is somewhat difficult in Macedonia. The books do not reflect reality because they are "tax driven" (i.e., intended to cheat the tax authorities out of tax revenues). Two sets of books are maintained: the real ones which incorporates all the income – and another one which is presented to the tax authorities. This gives the CFO an inordinate power. First, he is in a position to blackmail the management and the shareholders of the firm. Secondly, he becomes the information junction of the firm, the only one who has the whole picture. If he is dishonest, he can easily enrich himself. But he cannot be honest: he has to constantly lie and he does so as a life long habit. He (or she) develop a cognitive dissonance: I am honest with my superiors – I only lie to the State.

(2) To implement continuous financial audit and control systems to monitor the performance of the firm, its flow of funds, the adherence to the budget, the expenditures, the income, the cost of sales and other budgetary items.

In Macedonia, this is often confused with central planning. Financial control does not mean the waste of precious management resources on verifying petty expenses. Nor does it mean a budget which goes to such details as how many tea bags will be consumed by whom and where. Managers in Macedonia are still under the feeling that they are supervised and followed, that they have quotas to complete, that they have to act as though they are working (even if they are, in reality, most of the time, idle). So, they engage in the old time central planning and they do it through the budget. This is wrong.

A budget in a firm is no different than the budget of the State. It has exactly the same functions. It is a statement of policy, a beacon showing the way to a better (=more profitable future). It set the strategic (and not the tactical) goals of the firm: new products to develop, new markets to penetrate, new management techniques to implement, possible collaborations, identification of the competition, of the relative competitive advantages. Above all, a budget must allocate the scarce resources of the firm in order to obtain a maximum impact (=efficiently). All this, unfortunately, is missing from budgets of firms in Macedonia (that I have seen).

But the budget is only an amalgamation of the intentions. No less important are the control and audit mechanisms which go with it. Audit could be external but must be complemented by internal procedures. It is the job of the CFO to provide the management with a real time tool which will inform them what is happening in the firm and where are the problematic, potential inflammatory areas of activity and performance.

Additional functions of the CFO include:

(3) To timely, regularly and duly prepare and present to the Board of Directors financial statements and reports as required by all pertinent laws and regulations in the territories of the operations of the firm and as deemed necessary and demanded from time to time by the Board of Directors of the Firm.

The warning signs and barbed wire which separate the various organs of the Western firm (management from Board of Directors and both from the shareholders) – have yet to reach Macedonia. As I said: the Board is full with the cronies of the management. In many companies, the General Manager uses the Board as a way to secure the loyalty of his cronies, friends and family members by paying them hefty fees for their participation (and presumed contribution) in the meetings of the Board. The poor CFO is loyal to the management – not to the firm. The firm is nothing but a vehicle for self enrichment and does not exist in the Western sense, as a separate functional entity which demands the undivided loyalty of its officers. A weak CFO will become a pawn in the get-rich-quick schemes – a stronger one will become a partner in them. In both cases, he will be forced to collaborate, from time to time, with things which conflict with his conscience.

It is important to emphasize that not all Macedonian companies are like that. In some of them, the situation is much better and closer to the West. But there are prevailing senses of geopolitical insecurity (what will be the future of Macedonia), political insecurity (will my party remain in power), corporate insecurity (will my company continue to exist in this horrible economic situation) and personal insecurity (will I continue to be the General Manager). These insecurities combine to breed short-sightedness, speculative streaks, a drive to get rich while the going is good (and thus to rob the company) – and up to criminal tendencies.

(4) To comply with all reporting, accounting and audit requirements imposed by the capital markets or regulatory bodies of capital markets in which the securities of the firm are traded or are about to be traded or otherwise listed.

The absence of a functioning capital market in Macedonia and the inability of Macedonian firms to access foreign capital markets – make the life of the CFO harder and easier at the same time. Harder – because there is nothing like a stock exchange listing to impose discipline, transparency and long-term, management-independent strategic thinking on a firm traded in it. Discipline and transparency require an enormous amount of investment by the financial structures of the firm: quarterly reports, audited annual financial statements, disclosure of important business developments, interaction with regulators (a tedious affair) – all fall within the realm of the CFO. Why, therefore, should his life become more agreeable by it? Because discipline and transparency make the life of a CFO easier in the long run. Just think how much easier it is to maintain one set of books instead of two or to avoid conflicts with tax authorities on the one hand and the management on the other.

(5) To prepare and present for the approval of the Board of Directors an annual budget, other budgets, financial plans, business plans, feasibility studies, investment memoranda and all other financial and business documents as may be required from time to time by the Board of Directors of the Firm.

The primal sin in Macedonia was the so called Privatization. The law was flawed. To mix the functions of management, workers and ownership is detrimental to a firm, yet this is exactly the path that was chosen in Macedonia. Management takeovers and Employee takeovers forced the new, impoverished, owners to rob the firm in order to pay for the shares. Thus, they were unable to inject new capital, new expertise, new management, anything new. The companies are dying slowly.

One of the problems thus wrought was the total confusion regarding the organic structure of the firm. The Board was composed of friends of the Management because they were also the owners – but they could be easily fired by their own workers, who were also the owners and so on. his introduced an incredible amount of insecurity among the management ranks (see previous point).

(6) To alert the Board of Directors and to warn it regarding any irregularity, lack of compliance, lack of adherence, lacunas and problems whether actual or potential concerning the financial systems, the financial operations, the financing plans, the accounting, the audits, the budgets and any other matter of a financial nature or which could or does have a financial implication.

No chance – see my previous points and the previous article. The CFO is absolutely aligned and identified with the management. The Board is meaningless. The concept of ownership is meaningless because everyone owns everything and there is no identifiable owners (except in a few companies). Absurdly, Communism (the common ownership of means of production) has returned in full vengeance, though in disguise, precisely because of the ostensibly most capitalist act of all, privatization.

(7) To collaborate and coordinate the activities of outside suppliers of financial services hired or contracted by the firm, including accountants, auditors, financial consultants, underwriters and brokers, the banking system and other financial venues.

Many Macedonian firms (again, not all) are interested in collusion – not in consultancy. By hiring the consultant or the accountant – they believe that they own him. They are bitterly disappointed and enraged when they discover that an accountant has to comply with the rules of his trade or that a financial consultant will protect his reputation by refusing to collaborate with scams of the management.

(8) To maintain a working relationship and to develop additional relationships with banks, financial institutions and capital markets with the aim of securing the funds necessary for the operations of the firm, the attainment of its development plans and its investments.

One of the main functions of the Macedonian CFO is to be personally connected to the banks. The financial institutions which pass for banks in Macedonia lend money on the basis of personal acquaintance more than on the basis of analysis or rational decision making. This "old boy network" replaces the orderly collection of data and credit rating of borrowers. This also allows for favouritism and corruption in the banking sector. A CFO who is unable to participate in these games is deemed by the management to be "weak", "ineffective" or "no-good". The lack of non-bank financing options and the general squeeze on liquidity make matters even worse for the finance manager. He must collaborate with the skewed practices and decision making processes of the banks – or perish.

(9) To fully computerize all the above activities in a combined hardware-software and communications system which will integrate into the systems of other members of the group of companies.

(10) Otherwise, to initiate and engage in all manner of activities, whether financial or of other nature, conducive to the financial health, the growth prospects and the fulfilment of investment plans of the firm to the best of his ability and with the appropriate dedication of the time and efforts required.

And this, point 10, is what CFOs in the West are doing most of their working time. It is their brain that is valued – not their connections or cunning. Winning the game while acting legally is the foremost tribute and epitaph.


About The Author
Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.
His web site: http://samvak.tripod.com
Written by: Sam Vaknin, Ph.D.


(274)The Question Is - To Refinance or Not?

 


What does it mean to refinance? Why would anyone want to
consider it? There are numerous situations when someone
would refinance. When we use the word refinance, we are
basically referring to a loan: for example a car or house
loan. It may also be a business loan. In this article, we
are going to explain the home loan and some of the common
terms of refinancing and how they apply to other types of
loans as well.

The process of taking out a new mortgage or loan is called
refinancing, and using that money which you have received,
to close out your older mortgage. The process of doing a
refinance helps many homeowners, because you may then be
able to obtain a loan at a more favorable interest rate.
This can mean that you have the capability to retire
your mortgage earlier and have a lesser amount owed.

Since a refinance plan basically amounts to taking out a
new mortgage and closing out the previous mortgage, the
procedures involved resemble, those involved in taking out
your first mortgage. It is vital to keep in mind that the
procedure will probably involve at least some of the same
expenses again, because of this. But in view of the huge
amount of money that refinancing can benefit you, homeowners
discover that it is often well worth the hassle. Some
people may even decide to save up a specific amount of
money and apply it as a 'down payment" on the sum that they
refinance. They can then refinance a lesser amount and the
payments will be less.

Of course, the most popular reason to refinance is so
that homeowners can secure a lower interest rate and
therefore pay lower repayments each month. If the interest
rate that you received on your mortgage is higher than
current interest rates, you will probably want to consider
the benefits of refinancing. This means that even if your
refinanced mortgage is for the same amount as your
original mortgage, the lower interest rate means a total
lowered cost to you. Often a long-term loan will have a
large amount of interest and you may spend years paying
off just the interest and not paying the principal.

Naturally, when you refinance, it can mean lower
monthly mortgage payments for you and your family.
This essentially gives you greater freedom each month,
and far better security financially. Look into refinancing
options today, and start saving on your home mortgage!
Contact a mortgage broker and ask him or her to investigate
what options are open to you. Hilda Schultze has created a one stop resource site Refinance Ctr


Written by: Hilda Schultze


(275)The Shadowy World of International Finance

 


Strange, penumbral, characters roam the boardrooms of banks in the countries in transition. Some of them pop apparently from nowhere, others are very well connected and equipped with the most excellent introductions. They all peddle financial transactions which are too good to be true and often are. In the unctuously perfumed propinquity of their Mercedesed, Rolex waving entourage - the polydipsic natives dissolve in their irresistible charm and the temptations of the cash: mountainous returns on capital, effulgent profits, no collaterals, track record, or business plan required. Total security is cloyingly assured.

These Fausts roughly belong to four tribes:

The Shoppers

These are the shabby operators of the marginal shadows of the world of finance. They broker financial deals with meretricious sweat only to be rewarded their meagre, humiliated fees. Most of their deals do not materialize. The principle is very simple:

They approach a bank, a financial institution, or a borrower and say: "We are connected to banks or financial institutions in the West. We can bring you money in the form of credits. But to do that - you must first express interest in getting this money. You must furnish us with a bank guarantee / promissory note / letter of intent that indicates that you desire the credit and that you are willing to provide a liquid financial instrument to back it up.". Having obtained such instruments, the shoppers begin to "shop around". They approach banks and financial institutions (usually, in the West). This time, they reverse their text: "We have an excellent client, a good borrower. Are you willing to lend to it?" An informal process of tendering ensues. Sometimes it ends in a transaction and the shopper collects a small commission (between one quarter of a percentage point and two percentage points - depending on the amount). Mostly it doesn't -and the Flying Dutchman resumes his wanderings looking for more venal gulosity and less legal probity.

The Con-Men

These are crooks who set up elaborate schemes ("sting operations") to extract money from unsuspecting people and financial institutions. They establish "front" or "phantom" firms and offices throughout the world. They tempt the gullible by offering them enormous, immediate, tax-free, effort-free, profits. They let the victims profit in the first round or two of the scam. Then, they sting: the victims invest money and it evaporates together with the dishonest operators. The "offices" are deserted, the fake identities, the forged bank references, the falsified guarantees are all exposed (often with the help of an inside informant).

Probably the most famous and enduring scam is the "Nigerian-type Connection". Letters - allegedly composed by very influential and highly placed officials - are sent out to unsuspecting businessmen. The latter are asked to make their bank accounts available to the former, who profess to need the third party bank accounts through which to funnel the sweet fruits of corruption. The account owners are promised huge financial rewards if they collaborate and if they bear some minor-by-comparison upfront costs. The con-men pocket these "expenses" and vanish. Sometimes, they even empty the accounts of their entire balance as they evaporate.

The Launderers

A lot of cash goes undeclared to tax authorities in countries in transition. The informal economy (the daughter of both criminal and legitimate parents) comprises between 15% (Slovenia) and 50% (Russia, Macedonia) of the official one. Some say these figures are a deliberate and ferocious understatement. These are mind boggling amounts, which circulate between financial centres and off shore havens in the world: Cyprus, the Cayman Islands, Liechtenstein (Vaduz), Panama and dozens of aspiring laundrettes.

The money thus smuggled is kept in low-yielding cash deposits. To escape the cruel fate of inflationary corrosion, it has to be reinvested. It is stealthily re-introduced to the very economy that it so sought to evade, in the form of investment capital or other financial assets (loans and credits). Its anxious owners are preoccupied with legitimising their stillborn cash through the conduit of tax-fearing enterprises, or with lending it to same. The emphasis is on the word: "legitimate". The money surges in through mysterious and anonymous foreign corporations, via off-shore banking centres, even through respectable financial institutions (the Bank of New York we mentioned?). It is easy to recognize a laundering operation. Its hallmark is a pronounced lack of selectivity. The money is invested in anything and everything, as long as it appears legitimate. Diversification is not sought by these nouveau tycoons and they have no core investment strategy. They spread their illicit funds among dozens of disparate economic activities and show not the slightest interest in the putative yields on their investments, the maturity of their assets, the quality of their newly acquired businesses, their history, or real value. Never the sedulous, they pay exorbitantly for all manner of prestidigital endeavours. The future prospects and other normal investment criteria are beyond them. All they are after is a mirage of lapidarity.

The Investors

This is the most intriguing group. Normative, law abiding, businessmen, who stumbled across methods to secure excessive yields on their capital and are looking to borrow their way into increasing it. By cleverly participating in bond tenders, by devising ingenious option strategies, or by arbitraging - yields of up to 300% can be collected in the immature markets of transition without the normally associated risks. This sub-species can be found mainly in Russia and in the Balkans.

Its members often buy sovereign bonds and notes at discounts of up to 80% of their face value. Russian obligations could be had for less in August 1998 and Macedonian ones during the Kosovo crisis. In cahoots with the issuing country's central bank, they then convert the obligations to local currency at par (=for 100% of their face value). The difference makes, needless to add, for an immediate and hefty profit, yet it is in (often worthless and vicissitudinal) local currency. The latter is then hurriedly disposed of (at a discount) and sold to multinationals with operations in the country of issue, which are in need of local tender. This fast becomes an almost addictive avocation.

Intoxicated by this pecuniary nectar, the fortunate, those privy to the secret, try to raise more capital by hunting for financial instruments they can convert to cash in Western banks. A bank guarantee, a promissory note, a confirmed letter of credit, a note or a bond guaranteed by the Central Bank - all will do as deposited collateral against which a credit line is established and cash is drawn. The cash is then invested in a new cycle of inebriation to yield fantastic profits.

It is easy to identify these "investors". They eagerly seek financial instruments from almost any local bank, no matter how suspect. They offer to pay for these coveted documents (bank guarantees, bankers' acceptances, letters of credit) either in cash or by lending to the bank's clients and this within a month or more from the date of their issuance. They agree to "cancel" the locally issued financial instruments by offering a "counter-financial-instrument" (safe keeping receipt, contra-guarantee, counter promissory note, etc.). This "counter-instrument" is issued by the very Prime World or European Bank in which the locally issued financial instruments are deposited as collateral.

The Investors invariably confidently claim that the financial instrument issued by the local bank will never be presented or used (which is true) and that this is a risk free transaction (which is not entirely so). If they are forced to lend to the bank's clients, they often ignore the quality of the credit takers, the yields, the maturities and other considerations which normally tend to interest lenders very much.

Whether a financial instrument cancelled by another is still valid, presentable and should be honoured by its issuer is still debated. In some cases it is clearly so. If something goes horribly (and rarely, admittedly) wrong with these transactions - the local bank stands to suffer, too.

It all boils down to a terrible hunger, the kind of thirst that can be quelled only by the denominated liquidity of lucre. In the post nuclear landscape of this part of the world, a fantasy is shared by both predators and prey. Circling each other in marble temples, they switch their roles in dizzying progression. Tycoons and politicians, industrialists and bureaucrats all vie for the attention of Mammon. The shifting coalitions of well groomed man in back stabbed suits, an hallucinatory carousel of avarice and guile. But every circus folds and every luna park is destined to shut down. The dying music, the frozen accounts of the deceived, the bankrupt banks, the Jurassic Park of skeletal industrial beasts - a muted testimony to a wild age of mutual assured destruction and self deceit. The future of Eastern and South Europe. The present of Russia, Albania and Yugoslavia.

About the Author
Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, United Press International (UPI) and eBookWeb and the editor of mental health and Central East Europe categories in The Open Directory and Suite101.

Web site:


http://samvak.tripod.com/

Written by: Sam Vaknin


(276)The Truth About Home Refinance Loans (Avoiding Potential Pitfalls)

 

Submitted by: John Lee
WorldWideReviews
http://moneyemployment.worldwidereviews.com/Home

Refinance.htm
Online Home Mortgage Refinance Companies.
You've probably heard the advertisements on the radio or seen them on the television or in the newspaper:
        $170,000 Loan Under $560/month.
        Rates at Historic Lows.
        Save Now!

Whether known as "Online Home Mortgage Refinance Companies" or "Online Home Loan Refinance Companies" or "Online Mortgage Refinance Companies", they are all part of a relatively new type of online refinancing network. And they are Hot.

Recent popularity.
Millions of people are finding themselves paying too much for their home mortgage. This may be because they financed their home back when interest rates were much higher than they are now. If you have an interest rate over 6% then you are paying too much. Online Home Mortgage Refinance Companies make it quick and easy to get the lowest possible interest rate on your home. This typically saves a family hundreds of dollars a month.

How they work.
Most of the online home mortgage refinance companies work something like this:

* You fill out a brief 1 or 2 page online form. This can normallybe done in just a few minutes.
* The online home mortgage refinance company sends this form to its network of banks.
* You receive back a return email. This contains the best offers from the network of banks.
* You select the refinance offer you like best (normally the one with the lowest interest rate).

It is really that easy. If you like any of the offers you just reply to the email, indicating which offer you want to accept or to request more information. And all of this costs you nothing! There should never be an application fee.

Not all home mortgages are the same.
There are 3 bits of information about your loan that are very important:

Amount Financed: The amount of credit provided to you. This will normally be the amount of the loan you will receive from the lender.
Finance Charge: The dollar amount the loan will cost you. This is the interest you will pay on the loan.
Total Payments: The total amount you will have paid after you have made all payments as scheduled.

These figures can vary wildly between lenders. You should treat these refinance offers as you would a new car ... shop around for the best deal! Someone looking to secure a great home mortgage should fill out applications for several different Online Home Mortgage Refinance Companies, then accept the one with the lowest interest rate.. Why pay more than you have to?

Home refinance loans at your fingertips.
It used to be that to get quotes to refinance your home you had to go to several banks and sit in a lobby with many others. Fortunately this is no longer the case. There are now entire online companies that exists solely to administer these loans. Now the entire process can be completed quickly and easily from the privacy of your computer.

Fraudulent websites & Potential Pitfalls.
Unfortunately, as with any innovative idea come the scammers. Hundreds of "home refinance loans" websites have popped up, claiming to offer the best deals. Many charge excessive interest rates for even the smallest of loans. Other problems are:

1. Charging application fees (NEVER pay a fee to apply)
2. Excessive loan fees
3. Hidden charges
4. Zero help or customer service

Many of these SCAM sites won't even respond to customer requests. Eventually they get shut down due to too many complaints, or the State Attorney General forces them out of business. But the borrower is already locked into a bad deal, and the SCAMMERS just open another site under a different name in a different state. It's definitely "buyer beware".

Yes, you may find money in your attic (lower monthly payments)
If you can stay away from the SCAM websites, getting your home refinanced online through one of these home mortgage refinance companies can be a great way to get the best possible deal with the least amount of work.
Before applying online for a home refinance loan, you should be sure that the website satisfies the following minimum requirements:

* Well organized, easy to navigate sites.
* Helpful resources available for newcomers.
* Short application form that can be completed in minutes.
* No application fees.
* No obligation.
* No hidden charges.
* Less than perfect credit not a problem.

Copyright © by John Lee
Staff@WORLDWIDEREVIEWS.COM
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
John Lee is owner and publisher of the acclaimed
consumer reporting website WorldWideReviews.
A free product review and watchdog service.
Home Refinance Loans
http://moneyemployment.worldwidereviews.com/HomeRefinance.htm
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
About the Author
John Lee is owner and publisher of the acclaimed consumer reporting website WorldWideReviews. A free product review and watchdog service. http://www.worldwidereviews.com
DonkeyMails.com: No Minimum Payout
Written by: John Lee


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