Sweeping losses under the rug is nothing new on Wall St, but it’s getting worse. S&P 500 P/Es range from 16 – 134, depending on which earnings methodology you use. The first number is based on “operating earnings”, and the second is based on the real bottom line. If you need background on the difference between operating and non-GAAP, go here or here.

This graph shows the difference between S&P 500’s GAAP and operating earnings, in billions of dollars. The trend line is telling. Click to enlarge:

The data is from this spreadsheet (S&P). Go to the “Divisors and Aggregates” tab to see table used.

If you’re not familiar with the terms:

GAAP/As-Reported earnings represent the true bottom line, ugly losses and all.

Operating earnings can exclude any number of costs, charges, and losses.

Guess which one is exclusively-used by bulls and analysts(redundant)? Operating earnings, of course.

Some might say, “but wait, look at Q1 2009! Looks like they’ve cleaned up their act” Nope. That is the result of mark-to-imagination accounting. This change by the FASB “eased” mark-to-market rules just in time to make Q1 bank earnings palatable. The change boosted Citi alone’s bottom-line by $3b. Why again, are we so dismissive about Chinese accounting? Yes, they’re up to some tricks of their own. But you know what they say about glass houses. Well, we’re in one.

Q4 2008, for example. True losses were $201b, but on an operating basis the S&P lost less than $1b. That’s pretty shocking. I’m working on chart showing % change, which should account better for inflation. But my Excel skills are lacking, and the negative numbers combined with the 24,000% change in Q4 08 keep throwing my charts off. Any chart-gurus out there want to take a crack at it? The data is here for any so inclined.

Updated 8/18/09 for long-windedness and clarity.