Financial Talk

I should make a T-shirt. One that says, "When I was your age, I could use pooling accounting on my merger."

Pooling was disallowed, of course, in 2001. It allowed companies to avoid goodwill and thus save a temporary hit to EPS. Strange, huh? Accounting choice did not affect future cash flows. The investors shouldn't care. But management did. EPS mattered dearly.

“New York’s Citigroup reported an $8.3 billion loss”…

“Bank of America said on Monday that its quarterly profit declined 77 percent”….

A loss is an accounting loss attributed to the company. But most of these banks SOLD the toxic investments that they made. What is going on here?

The meltdown wiped out and bankrupted famous investors. Evidence even surfaced of involvement by some politicians. The new, clever financial innovations suffered horrible mispricing; investors who believed they were holding solid, liquid assets were left holding empty bags when the markets crashed.