London Banter - View Single Post

Stephen Sprunk

On 12-Mar-12 12:01, wrote:
On Mar 9, 2:34 am, Stephen Sprunk wrote:
Note that overdraft (at least in the US) is _not_ guaranteed; the bank
can refuse to honor any debit against insufficient funds at their
whim--but they generally will, since it allows them to charge the
customer massive fees on top of the debit itself.

FWIW, in the old days, banks would occassionally honor a slight
overdraft by good customers without charge or fee.

One common tactic is charging fees for anything and everything, but
willing to waive them if the customer calls up to request it. The
banks and other businesses know most people are too busy today to (a)
scruintize their statements carefully and (b) call up and go through
the phone mail jail to get a knowledgeable human.

But one bank pushed it too far and went out of business.

IIRC, the bank that "pushed it too far" was found guilty of charging
fees that weren't warranted in the hope that customers wouldn't notice
and complain. Most didn't, but enough did and it made the news.

Similarly, banks across the US have been foreclosing on houses they
don't even hold the mortgages for because of all the craziness in
mortgage trading over the last decade. A few high-profile cases
(including one in which the victim foreclosed on the bank's local branch
in retaliation--and won) hit the news and Congress is now whacking them
with a giant stick. They won't learn their lesson, though; they never do.

Technology products are typically amortized over 3-5 years. 20 years?
You're way, way behind the curve in both costs and capabilities, to the
point it's almost certainly costing your business more (in both lost
revenue and higher operating costs) than buying replacements would cost.

Amortization time is often based on tax issues rather than the actual
expected life of the equipment. Many companies seek to amortize as
fast as possible in order to get the biggest expense tax reduction
from the depreciation charge.

You are, again, confusing depreciation in the tax books with
depreciation in the real books. If they do not follow IRS rules for the
tax books, they get fined by the IRS and potentially go to jail. If
they do not follow GAAP rules for the real books, they get fined by the
SEC and potentially go to jail (if they are a publicly-traded company;
if not, it's irrelevant).

Cash for replacement is a separate issue and planned for separately.

Agreed, but cash is irrelevant to such decisions anyway if the business
is operating under accrual-based accounting; if not, they do not use
depreciation and this discussion does not apply.

OTOH, lots of folks didn't understand this until the 1980s or even
1990s; they had amortized tech on a 10 or 20 year cycle like they would
for heavy machinery--and then got burned when they needed to upgrade and
couldn't because they were still paying for equipment that was only fit
to be used as paperweights.

A normal company will replace equipment when it is economically
desirable to do so regardless of its past amortization. If they do so
early they 'write down' the asset as a special charge.

No executive willingly does that because it will hurt their reported
earnings for the quarter and therefore their stock options. What is
best for the business in the long-term is irrelevant; they only care
about what happens until they pull the ripcord on their golden parachute.

A company with weak fiances may 'make do' with old equipment if it is
still viable,

Continuing to use fully-depreciated assets may be materially
understating the actual cost of operations. If they admit that, it's
one thing, but many do not--and should be in jail for it.

Lifespan of "technology" units (or heavy machinery) varies greatly
depending on many factors.

There are extraordinary cases where 5yrs is appropriate, but 3yrs is the
norm, and a competent accountant will question anything longer because
it's likely a violation of GAAP and/or IRS rules.

Speaking as an employee of a tech products vendor, customers are now
demanding full ROI in 12-18 months, which gives them immediate cost
savings even on a 36-month depreciation schedule. "Disruptive" new
technologies can have an ROI of 6-9 months. Nobody sane wants to have
to wait 5+ years to adopt new technology--unless they're a monopoly and
therefore don't have to worry about competitors adopting it first.

Being the "first on the block" to adopt new technology is highly
risky. New technology needs time to get the physical, software, and
workplace bugs ironed out.

Of course, and there are best practices to deal with that.

New for "newness sake", so avidly pushed by techies over recent years
is not always a prudent approach.

I know _lots_ of techies, and none of them advocates "new for newness
sake". At worst, I see people underestimating the costs, not fully
understanding the problem to be solved and/or not implementing things
properly.

I remember in the early days when newcomers were producing PBX
switches how many customers suddenly found themselves without phone
service because certain functions--once taken from granted because Ma
Bell did them--no longer worked. Others had so many features that no
one needed or could understand how to use that using the phones became
a nightmare, not an improvement.

Both cases sound like failures to understand users' needs, test the
proposed products and select the best option.

Returning to railroads, the PRR once always prototyped new technology
in a small order to get the bugs out before a large order. That
research was a reason the GG-1 was such a huge success.

Any savvy customer does that with "bleeding edge" technology, and
vendors typically propose it as well. Some customers don't listen.

Unfortunately, when they ordered the Metroliner MUs, they rushed the
purchase before testing and it took years to debug the cars.

And that's why you do your testing /before/ implementation.

S

--
Stephen Sprunk "God does not play dice." --Albert Einstein
CCIE #3723 "God is an inveterate gambler, and He throws the
K5SSS dice at every possible opportunity." --Stephen Hawking