I think you are making some very valid arguments however I disagree with the principle of your position.
1. Status quo.
Yes, it's standard accounting practice to move huge amounts of liabilities off the balance sheet. Yes, whenever there are rules, people will try to game them. So what? It's wrong, and the status quo doesn't make it less so. When people like me call it out, it's not because we were born yesterday and have somehow missed the big bad world in front of our collective face. It's because we recognize that complexity (as applied to this situation) is made up to maintain the above mentioned status quo. When I had my startup, I chose to book profits on a cash basis instead of an accrual basis because I felt it was the sane thing to do. Would it have been perfectly legal for me to choose the accrual basis? Of course. Would it make any sense to pretend that I've made thousands of dollars where I've made zero? I don't think so. I am not comparing myself to Cisco but I don't think it's right for Cisco to pretend that their fantom profits are real either. Lucent did that and they are now bankrupt.
2. Lazy investor.
My apologies for the dramatic comparison, but the "lazy investor" argument is a bit like the rape victim argument. First you are going to say that the investors who do not pore over financial disclosure documents deserve being "misled" because they are lazy. Then you are going to say that the Nigerian scam victims deserve it because they are gullible. How long before you say that a young woman is "asking for it" when she goes to a bad neighborhood at night, alone? I am not saying you personally would subscribe to that argument of course, I am just pointing out that if you take that logic to its conclusion, only the strong survive, and that excludes all of us. It's no more realistic to keep up with miles and miles of financial disclosures and other assorted small print than to keep out of bad neighborhoods at all times.
3. Tinfoil hat nonsense.
I am not the biggest authority on the stock market but is there not a clear consensus that the current devaluation was caused by the financial firms' failure to recognize mind-boggling amounts of liability on their balance sheets? Perhaps I am misunderstanding what you are trying to say but it seems to me your last point was that that's just a wacky conspiracy theory. What do you attribute the devaluation to then?
Your post reads like it belongs on Seeking Alpha, with its mixture of bizarre rhetoric and utter misunderstanding of the stock market.
I won't bother with responding to your whole post, but let's address one particularly wrong statement of yours, as an exemplar of what's wrong with everything you write:
"I am not the biggest authority on the stock market but is there not a clear consensus that the current devaluation was caused by the financial firms' failure to recognize mind-boggling amounts of liability on their balance sheets"
No, this isn't true at all. First, the current "devaluation"--by which I assume you mean recession, because it's not obvious what else it could be--was caused by a number of things. Second, there is no "clear consensus". Third, in general, banks were brought down by on-balance-sheet liabilities. In particular, I recall reading dozens of news items on write-off after write-off of subprime debt, which must be on the balance sheet to count as a loss, else the financial statements don't add up. Fourth, you seem to be confusing the technical accounting meaning of liability with the general meaning, but let's not get into that.
One more thing--the role of capitalism is not to provide capital owners with free money; people who expect returns must put in the time and effort ensuring the capital is going to good use, market economics dictates that this will in general be hard, and it is utterly bizarre that you compare not getting free money to rape. I find it befuddling and sickening that you would dare to say such a thing. Put aside your e-rage and think about it for a second.
Whoa, dude. What a case of a kettle calling the pot black. You've just said that: you are befuddled and sickened by my post, everything I write is wrong, my post is bizarre, my opinions are tinfoil hat and too silly to be true, I have an utter misunderstanding of the stock market, I am confused about basic accounting concepts, and finally, how dare I express my opinion.
Add to that how you open your posts. I started my response to you with, I think you are making some very valid arguments however I disagree with the principle of your position. You started your 2 responses to me with, There's all kinds of things wrong with what you said, and Your post reads like it belongs on Seeking Alpha, with its mixture of bizarre rhetoric and utter misunderstanding of the stock market.
Do you see the difference? I acknowledged, even complimented, your arguments, and expressed a personal difference of opinion. You on the other hand, started both responses with a categorical judgement that I am ignorant, wrong about everything, and crazy to boot.
And you think I have e-rage? For real?
Ok, on to more reasonable conversation.
First, I did not mean "recession" when I said "devaluation". Why would you take a word I actually used and say that I meant a different word? What I wrote was, I am not the biggest authority on the stock market but is there not a clear consensus that the current devaluation was caused by.... Which part of "stock market" was "not obvious"?
Second, of course I did not compare not getting free money to rape. Again, you've completely twisted my words (especially since I apologized for the dramatic comparison ahead of time). My point was, blaming investors who become victims of accounting fraud is similar to blaming rape victims. In both cases, the focus is shifted from the crime onto the carelessness of the victim and I think that that's wrong.
The thing is, I'm not really interested in a blow-by-blow pseudo-discussion with someone who's convinced himself of some strange alternate view of events and refuses to acknowledge any challenge to this world view. I tried to cut things short and attack the sweeping, fundamental fallacy, but you insist on sticking to surface disagreements, perhaps as a way of shielding yourself.
"Well," you say, "you make a good point, but you see my view of what constitutes 'widespread accounting fraud' is different from the standard view, but my uninformed view is right and everyone else's is wrong, so you're wrong, too. Also, I'm being civil." I'm not really interested in talking to someone who thinks like that, so I'm done.
You're defining "wrong" to mean something other than "against the rules". If you can't get the rules changed, it doesn't matter what you wish they were.
> First you are going to say that the investors who do not pore over financial disclosure documents deserve being "misled" because they are lazy
I'm not the OP, but I wouldn't have said "lazy". However, intelligent investing takes time and skill that most people don't have. If you don't read the financial reports, why do you think you have enough information to decide whether to invest in a company? Reading WSJ headlines does not make an informed investor.
The rest of your paragraph is a hyperbolic effort to put words in another's mouth.
1. I was using the word "wrong" in its normal dictionary definition (http://dictionary.reference.com/browse/wrong). It is not right, good, or truthful to "shout" your profits/assets in big print on the main financial docs, while "whispering" your losses/liabilities in small print in supplemental documents.
2. If you can't get the rules changed, it doesn't matter what you wish they were.
Are you serious? It matters very much. Public opinion changes both the rules and interpretation of the rules all the time, through voting, legislative action and general intellectual osmosis. Just this week, we got ourselves gay marriage and iPhone jailbreaking. I am especially surprised to see such an ultra conservative opinion on a hacker/startup community.
3. I totally agree with you that intelligent investing takes time and skill. I dedicate maybe a half hour of my workday to investing, and I would guess that your average investor doesn't spend even that much time. Yes, it is terribly inadequate. So what are you doing to do about that? We do not live in an ideal world - we do not have medical insurance only for those who exercise constantly, avoid stress, and never eat anything with sugar in it; or driver's licenses only for those with perfect vision; etc. The rules must work for the real world, not some hypothetical ideal.
3. The rest of your paragraph is a hyperbolic effort to put words in another's mouth.
Actually, I explicitly refrained from putting words into op's mouth: "I am not saying you personally would subscribe to that argument of course". Sorry if that was unclear.
My point about "wrong" vs. "against the rules" is that the rules of a system go a very long way to determining the behavior of participants. Subjective claims of wrongness carry very little weight when there are stronger incentives working in a different direction. Large-scale change usually occurs through changing the rules of the system. This is especially true if you want the change to happen quickly. I'm sure you can find counter-examples, but they are largely the exception.
> Public opinion changes both the rules [...]
If the systemic change is a result of a change to the rules, then it's not a counter-example to what you're quoting. If you re-read what I wrote, I think you'll find we're closer to agreement than you think.
1. Status quo.
Yes, it's standard accounting practice to move huge amounts of liabilities off the balance sheet. Yes, whenever there are rules, people will try to game them. So what? It's wrong, and the status quo doesn't make it less so. When people like me call it out, it's not because we were born yesterday and have somehow missed the big bad world in front of our collective face. It's because we recognize that complexity (as applied to this situation) is made up to maintain the above mentioned status quo. When I had my startup, I chose to book profits on a cash basis instead of an accrual basis because I felt it was the sane thing to do. Would it have been perfectly legal for me to choose the accrual basis? Of course. Would it make any sense to pretend that I've made thousands of dollars where I've made zero? I don't think so. I am not comparing myself to Cisco but I don't think it's right for Cisco to pretend that their fantom profits are real either. Lucent did that and they are now bankrupt.
2. Lazy investor.
My apologies for the dramatic comparison, but the "lazy investor" argument is a bit like the rape victim argument. First you are going to say that the investors who do not pore over financial disclosure documents deserve being "misled" because they are lazy. Then you are going to say that the Nigerian scam victims deserve it because they are gullible. How long before you say that a young woman is "asking for it" when she goes to a bad neighborhood at night, alone? I am not saying you personally would subscribe to that argument of course, I am just pointing out that if you take that logic to its conclusion, only the strong survive, and that excludes all of us. It's no more realistic to keep up with miles and miles of financial disclosures and other assorted small print than to keep out of bad neighborhoods at all times.
3. Tinfoil hat nonsense.
I am not the biggest authority on the stock market but is there not a clear consensus that the current devaluation was caused by the financial firms' failure to recognize mind-boggling amounts of liability on their balance sheets? Perhaps I am misunderstanding what you are trying to say but it seems to me your last point was that that's just a wacky conspiracy theory. What do you attribute the devaluation to then?