Banks rediscover the uses of the kitchen sink

Hi-

It is definately common practice to take a bath if you have a big write-down coming anyway. Heck, why not? This is especially true if a new manager takes over - better get your reorg boots on.....

Take everything that is doubtful and write it off in one giant fell swoop. Take one big financial beating and just get it over with. The idea is to clean up your books and get it all out of the system at once.

When your company's performance dramatically improves during the next reporting cycle, you can claim that it is due to your unmitigated brilliance as a financial manager and collect your hefty bonus.

Cha-Ching!!

Somewhere back there, hidden from all of us (or perhaps it is all of us) is the rational investor. Does he not see this is happening? Doesn't the market properly digest and reflect this massive chunk of misinformation?

Perhaps we have entered a new era. With way too much money. I just heard that the dress worn in the movie Breakfast at Tiffanys sold for almost $1 million. That same kind of money is floating around in the market.

Justin, you're writing a book about this - what does it all mean?

GLD-

You could make an argument that writing down doubtful accounts is a good thing, but of course a savvy analyst can certainly root out much of non-sense that goes on behind the scenes.

Always be careful of the word "earnings", because what makes up that term can be manipulated to a tremendous degree. In business school, the finance professors always laughed at the accounting profession's propensity to focus on "earnings" and the like.

The teachings of the Finance professors was to focus on the cash-flow statement, as this is much harder (though not impossible) to manipulate.

If an investor knows what he or she is doing, the information needed to make reasonably sound investment decisions is there, though you of course will have to look past certain tricks and not believe the company propaganda or the propaganda of those trying to sell you this particular stock.

However, one could point to the Enron debacle and clearly see that not everyone chooses to educate themselves about how to look at a company's books and make foolish investment decisions.