The NYT reports:
From the fourth quarter of 2004 through the third quarter of 2008, the companies in the S.& P. 500 - generally the largest companies in the country - reported net earnings of $2.4 trillion. They paid $900 billion in dividends, but they also repurchased $1.7 trillion in shares.
We know the profits weren't real. Much of it was simple mark to market revaluation. In which the dividends and share repurchases were paid for out of borrowing.
No wonder leverage has shot through the roof. And now companies will fail as a result.
I know this is the US and they use different rules, but the IASB has a lot to answer for in releasing this madness on the rest of the world.
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Richard-
You say we know these $2.4 in earnings “weren’t real”.
Really?
Would you have anything in the way of documentation to support your assertion? Like, perhaps, a detailed analysis of that $2.4 trillion in earnings?
Just leave a link, if you please.
Thanks
Kenton
Try this:
“A big part of the problem is that accounting rules have allowed banks to inflate the value of their assets, he said.
“Accounting has become a new exercise in creative fiction,” with the result that banks are carrying a lot of “sludge” assets clogging up the balance sheet, hindering their ability to fuel economic growth, he said.”
That’s Lazard Ltd (LAZ.N) Chief Executive Bruce Wasserstein
http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE49T77O20081030
Why are you in denial when the rest of us aren’t?
Is it all hunky dory in your world?
Richard
Dennis-
Why, in this context, would you ask me if all is hunky dory in my world? What a strange thing response to a straightforward question.
What I am trying to do is verify that your claim has is based in fact. That’s all.
Given that the financial sector represents 20% of the S&P 500, what you are claiming is the following:
1) All $2.4 trillion in profits are directly attributable to the financial sector of the S&P 500.
2) The remaining 80% of the S&P 500 had profits and losses netting to $0.
3) All of the $2.4 trillion in profits were a result of market-to-market gains.
4) The financial sector had, on a net basis, $0 in operating profit.
In other words, you’re claiming that 100% of the S&P 500’s profits for September 1, 2004 through September 30, 2008 were the result of mark-to-market accounting for marketable securities.
Those are extraordinary claims, which is exactly why I asked you to provide meaningful substantiation. I find it interesting that what you provide is:
1) An opinion expressed by a Wall Street executive, and
2) An accusation that I am “in denial”.
You know, you often go on at great length about the duty of an auditor being an obligation to “look behind” the numbers to get to the “true and fair” value of an asset.
What I am doing is much the same. I am attempting to look behind your claim (to the actual numbers – not Wall Street opinions) to get the true and fair value of its merit.
That has nothing to do with denial. Or the level of hunky dory in my world. What is has everything to do is with having a appropriate level of professional scepticism for sweeping generalizations and extraordinary claims.
Again, I request that you provide appropriate substantiation.
Sorry, that should read:
“What a strange response to a straightforward question.”
And…
“… profits for October 1, 2004 through September 30, 2008 were…”
[…] wrote a blog the other day entitled Modern Finance: Making Dividends out of Loans. Am American CPA seems to have take offence at my, admittedly, broad brush approach, […]
[…] wrote a blog the other day entitled Modern Finance: Making Dividends out of Loans. Am American CPA seems to have take offence at my, admittedly, broad brush approach, […]
Hi Richard, thought you might want to know, if you google” Kenton E. Kelly, CPA” you will find a rather offensive blog post revealing Kenton E. Kelly doesn’t exist. Apprently its a blogger named Dennis The Peasant pretending to be someone else.
Heres the blog: http://dennisthepeasant.typepad.com/
Joe
Thanks
These guys don;t know much about ethics do they?
I guess it goes with the patch
Richard
Richard-
Factually challenged… again!
If either you or Joe had done your research correctly, you’d know that Kenton E. Kelly is my real name, I am a CPA who works and resides in Ohio, and that I do blog under the name of Dennis the Peasant.
The next time you Google “Kenton E. Kelly”, read the results with a bit of care!
So how is it I am being unethical in using my real name?
Kenton
Two thoughts occur to me:
1) How do I know?
2) If it’s true why do you bring your profession into disrepute by behaving as you do?
Richard