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Did We Come To Report Earnings? Or To Bury Them?

Posted by: Mark Gimein on October 24, 2011 at 6:30 AM

bankvault.jpgLast week, as Occupy Wall Street was occupied with Wall Street’s misdeeds, Wall Street itself was occupied with earnings. These have proved so opaque that if the financial press ended last week explaining the earnings, the next days may be devoted to explaining the explanations.

The basic problem is that the big banks made a huge amount of money in the last quarter, except really they didn’t. Bank of America and Morgan Stanley reported billions of dollars in income … in other words, a dismal quarter as Bloomberg’s Michael J. Moore reported. The issue here is “debt value adjusted,” a phantom profit measure that lets banks record earnings when their own bonds fall in value based on the theory that they could buy it back at a discount.

The accounting maneuver amped up the earnings of most of the banks, but the optics of all this may not be so good for the banks after all. First they’ve gotten repeatedly hammered in the press for inflated earnings numbers (the Financial Times’ Alphaville is notably comprehensive on this). Now guess what? Those same inflated numbers will provide gunpowder for everyone who looking for evidence of excessive profits.

The one investment bank that dodged this is Goldman, which was fortunate enough to declare a loss. But now we still get to debate whether that means it’s doing something wrong or doing pretty much what it should be doing.

(Bank vault image by grittycitygirl via Flickr.)

Reader Comments


October 24, 2011 11:22 AM

So, does anyone still wonder why we don't trust these guys?


October 24, 2011 12:29 PM

Great story. Perfectly well written and straight to the point.


October 25, 2011 12:18 PM

It is funny that this is even a mystery to anyone. Any of the talking heads I hear saying "they don't even know ____" just don't get it at all. Did the investment banks think that we (taxpayers/debtors) could hand over $700,000,000,000 dollars just to watch it be invested in T-Bills and Japan Carry Trades in large margins? Wasn't that money supposed to find its way to small business? If not, then we can stand in the street until someone can tell us...


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March 26, 2012 6:01 PM

Excellent responses, interesting website, hopefully more people will contribute with new input.
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"The Wealth Debate" is a running discussion of wealth, poverty, the economy and income inequality in the U.S. and the world. It was started shortly after the Occupy Wall Street movement sparked a global protest about the fallout from the financial crisis and money in politics. You can reach the editors, Dan Beucke and Mark Gimein, by email, or follow BloombergNow on Twitter to keep up with posts.

Analyses or commentary in this blog are the views of the author and or commentators, and do not necessarily reflect the views of Bloomberg News.

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