The NYT noted that the revisions to GDP released today raised profits in 2005, 2006, and 2007, which means that the downturn this year in profits is even larger than previously reported. It suggests that this sharper downturn may be one of the reasons for gloom on Wall Street.
It is worth noting that much of the profit reported in these years was fictitious. The financial sector accounted for close to 30 percent of corporate profits in these years. Much of their booked profit was for fees on transactions that subsequently led to huge losses. While the executives of these companies earned large bonuses based on these profits, the shareholders did not benefit unless they sold their stock before the losses were revealed.
It is not clear that investors really long for more fictitious profits, although any individual investor will be helped if the rest of the market believes that fictitious profits are in fact real profits, since this would allow them to sell their shares to more gullible investors at a high price.
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