“A sneaky method by which unscrupulous banks and S&L camouflage their problem loans. If a developer, say, asks to borrow $1 million for a commercial project, the bank offers him $1.2 million on the basis of an inflated appraisal. The extra $ 200,000 is held in reserve by the bank. If the developer defaults on the loan, the bank can use this extra money to cover the developer’s payments. That way, what has turned into a bad loan can still carried on the books as a good loan—at least temporarily……. If it’s right, it’s another reason to avoid investing in banks and S&Ls with large portfolios of commercial real estate.”
“Corporate managers often pay lip service to “enhancing shareholder value” and then go out and squander the money on fanciful acquisitions, ignoring the simplest and most direct way to reward shareholders—buying back shares.”
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