Although it hasn’t been widely noted, the planned sale at a distressed price of discount retailer Steve & Barry’s has a striking link to the subprime mortgage mess. The link is that Steve & Barry’s and the subprime lenders relied on clever financial engineering that worked for a time, even for years, but that was clearly unsustainable and should have been recognized as such by management and investors.

Steve & Barry’s, like the subprime lenders, got all its profits up front, from payments that starved mall operators paid the company to open stores in their facilities. Estimates are that the 276-store clothing chain received hundreds of millions of dollars in such payments over the years, apparently far more than the profits the company recorded. In other words, Steve & Barry’s was losing money on the sales of its inexpensive clothing but camouflaging the losses with onetime payments. The only way to sustain the fictional profitability was to keep opening stores. But how long was that sustainable? Obviously, not long enough.

In our research, we found numerous instances in which companies, such as subprime lenders, became addicted to the fees that they earned from generating loans, from opening stores, etc. or to the gains they produced through accounting tricks. The problem was that they could never stop; once they started down a dubious path, they had to go further and further to keep generating the growth that Wall Street had come to expect.

We’d like to think that the subprime mess, Steve & Barry’s and other examples have taught companies that they need to be certain they are generating sustainable profits, but there are surely other companies out there whose weakness will be exposed in this difficult economy. The only question is: Who’s next?