Just like you never want to hear a doctor say "oops" in the operating room, you never want to see a going-concern statement in a financial report about a company you own. Accountants throw these in when they've been over the books, talked to customers, and checked the horoscopes and have concluded there is "substantial doubt" about a company's ability to remain in business. In short, don't blame the accountants if the company files for bankruptcy protection.

You¿d reckon that a going-concern statement would be enough to send investors running to the exits, but it's not. True, many large institutions automatically bail when an existing company gets slapped with one of these, but many individuals (often wrongly) take a chance they know more than the bean counters.

During the tech boom of the late 1990s, many companies actually went public even though they had been hit with going-concern statements. Many of those companies subsequently disappeared. Enough said.

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Sunday, October 12, 2008

World Leaders Take Big Steps Against Credit Crunch

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Government leaders in the U.S. and abroad took big steps this weekend to battle the financial ‘flu’ that has spread across the globe.

In an effort to thaw the credit crunch, Europe’s euro-backed countries decided Sunday to guarantee bank refinancing through the end of 2009 and took measures to prevent more banks from failing. Fifteen European leaders met in an emergency meeting in Paris on Sunday to address the crisis, aiming to help bolster banks’ confidence in lending with one another and get credit flowing once again.

While no sum was given on how much the efforts would cost, French President and summit host Nicolas Sarkozy said each nation would determine how much to spend and implement the measures.

"I want to tell our compatriots in all the countries of Europe that they can and should have confidence," he said.

At the same time, the World Bank announced Sunday it will work to develop and strengthen the economies of developing countries. At a joint news conference with Dominique Strauss-Kahn, head of the International Monetary Fund, World Bank President Robert Zoellick said Sunday that any extended contraction of credit could cause further turmoil in developing countries’ ability to provide for their citizens, who already face high energy and food prices.

Zoellick called for a revamping of the global economic system to ensure that a financial crisis of this level “never happens again.”

International efforts to stem the credit crisis reached a peak on Wednesday, as central banks made an unprecedented decision to take a coordinated interest rate cut. The move came during a week in which global markets suffered some of their worst losses on record.

As finance leaders from the Group of Seven (or G7) met Friday to come up with a unified plan to battle the credit crunch, Treasury Secretary Henry Paulson announced that the U.S. government will buy an ownership stake in some of the nation’s private financial institutions – a move not seen since the Great Depression.

“This is a period like none of us has ever seen before,” Paulson said in a news conference late Friday.