We have studied balance sheet presentation of securities in Intermediate. Here is an article about how various mortgage companies like AHM are restating earnings estimates. I posted this article because it is a great example of how accounting ‘estimates’ can change which changes E/S (which we are studying now) which changes the stock price which can evaporate the value of options that we are studying now.
Securities which WERE rated A and Baa are now resulting in losses for the holders of those securities. Gee, sounds like the rating agencies blew that one dosen’t it? So it turns out that the pebble tossed in the pool generates wider and wider circles. Now stop and think how
the flawed analysis of the rating
is reflected in the downgrade of the securities held which
results in losses since the securities are not paying off to their holders
so the earnings are lower than projected for the holders
which means the E/S is down which means
the denominator of P/E is down
which means that if the P/E is falling so will the stock price
whoops
see how all this ties together? Cick on the chart at the start of this post to see the real world short term result reflected in the stock price. Go to www.stockcharts.com and put the other symbols mentioned in the article in to see what is happening to their stocks.
Professor Elam 
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