The vanished grandeur of accounting

So, at its heart, the idea of being a 'professional' is not congruent with working in a state of pure-competition, in terms of the basic trade. The exclusionary structure of the professions was indeed a part of there allure.

This was justified in several ways for many years. But essentially the main justification(s) revolved around the concept of trust. A person needs to place fiduciary and/or implicit trust in his lawyer, his accountant, and his doctor. That is, he must divulge information to each professional which is sensitive--more specifically, it can be used to harm-- the client/provider of information in particular. To get the societal benefit of the professional services, it's crucial that such information flow occur, and that the client (or potential client) have his implicit trust maintained.

Since this is a complex-contracting problem at a game theory level, the practical way it was handled was by excluding a great many potential practictioners. Thus, the economic & social privledge was provided under the condition of self-policing to levels worth of such privledge. This is the origin of professional 'qualifications'.

So, the passing of the bar exam, or the medical school or financial charter examps, were the means to provide a structural gate of minimum quality and a throttle on maximum throughput re: competition from new entrants. This limitation on competition, not to mention the vulnerable negotiation dynamics (see: implicit trust), allowed the professions to negotiate "advantageously" free market rates for many years. This origin in political economy is critical to understandin the lucrative remuneration dynamics of the professions in a historical context.

So this at least paints the picture at a level which leads to some light shining down on a problem we have today.

(1) The professions are not at all suited (either culturally, or otherwise) to incorporate un-fettered levels of competition. In part this is mitigated by regulation; but other parts remain problematic. Its not just the issues around abuse of implicit trust. It also involves the sociology of "exclusivity" and how the cultural changes from commoditization make the concept of acting "professionally" problematic (either disadvantageous or otherwise prohibitively costly). However, the "professional" aspects of rendering "professional services" are critical to their value for greater society.

(2) The old ways of limiting competition are no longer capable of limiting competition. Nor providing the status boost that being (a lawyer, doctor, accountant) "professional" once had. The more obvious problem with this is the feedback loop with #1. The more subtle and vexing problem is how to solve this in a way that is consistent with "professionalism", whilst at the same time works from a broader perspective of political economy (ie, does good things broadly speaking for the structure of society, and the legal/health/busineess infrastructure that underpins basic civilization.

Hope that helps clarify a couple things.

I used to do it for diversified biotech's with multiple earning dates after a FDA rejection where the market either dramatically discount or over-inflate the stock price over the book value/IP of the company.

I know peeps who are also valued investors who similarly do the same thing distressed assets after a scandal with a CEO or something where the market's valuation is incorrect when you do the cash flow projections, tangible assets etc.

Now I trade options based on volatility, so try not to do as much directional trading. But love to hear some of your guys' accounting wizardry in reading those balance sheets.

The Reckoning

http://www.amazon.com/The-Reckoning-Financial-Accountability...

http://en.wikipedia.org/wiki/Benford's_law#Accounting_fraud_...