Maybe some accounting imagination. All those wondrous years in which General Electric made their numbers quarter after quarter, and all the accolades heaped on Jack Welch during that period, seemed to be too good to be true. He did do a good job of selecting and discarding businesses, no doubt, but it turns out some financial Enron-type shenanigans, albeit on a smaller scale, were also at work.
All managements have tuck-aways, reserves created when results are good--saved for a rainy day. It is now being exposed that GE was quite aggressive on this account, but that's okay as long as these reserves were created prospectively and not the other way around. Rolling previously created extra reserves into current earnings is okay; rolling not-yet-created future reserves into current earnings, i.e. borrowing from the future like our governments do, is not okay.
But apparently GE went a little further. Setting up accounts off balance sheet with which to do transactions like selling and then leasing back barges, truly an Enron-like tactic, is now being uncovered. Let's see how this unfolds; but anyone should have known that the steady state quarter by quarter earnings growth and making earnings targets for years on end was highly artificial.
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