Goldman Sachs Takes Us All Back To 1976

Before turning to yesterday's news from Goldman Sachs, a quick trip down memory lane.

Older (or should I say "more experienced"?) federal budget observers will remember the "transition quarter" or "TQ," the three-month period when the federal government switched from a fiscal year that began on July 1 to the current fiscal year that begins on October 1.

The change was mandated by the Congressional Budget Act of 1974.  It was intended to give Congress and the president three extra months to get all of the work on the budget done before the fiscal year began and to reduce what at the time was considered to be an overuse of continuing resolutions to fund the government.

(Please stop laughing about that last line about stopping the reliance on continung resolutions.)

Lawmakers knew that, because it was only three-months long and comparisons to a full year would be difficult for all but the best numbers crnchers, the TQ would get very little scrutiny.  As a result, in a stunt that later would be perfected by David Stockman and Richard Darman, some spending from FY1976 -- the last of the July to June fiscal years -- was delayed into the transition quarter so that the 1976 results would look better.  Some spending from FY 1977 -- the first of the October to September fiscal years -- was also accelerated to the TQ so that that year's results would look better.

Fast forward to yesterday.

As this report from today's Washington Post explains, although it was only a one- rather than a three-month transition, Goldman Sachs essentially did the same thing when it changed from a December - November to a January - December fiscal year.  The Goldman Sachs change, like the one mandated by the Congressional Budget Act, was legitimate.  And the impact of the change on the Goldman Sachs' results was the same as the TQ's impact on the federal government's bottom line for the subsequent year, that is, they were vastly improved.

Here's the money quote:

Michael Williams, director of research at Gradient Analytics, which specializes in examining corporate accounting, said companies have a lot of discretion in deciding when to recognize gains and losses.

"It does seem rather remarkable that they ended up with such a large amount of losses in December itself, just in that four-week period," Williams said. "You're just left scratching your head to a large extent about what's underlying the numbers for the month," he said.