Let us break this question into 3 parts.
Frist, I still think you are confusing Zelman (child company, maybe viable) with Moneual (parent company, fraud, massive bank loans, not viable.)
Second, why operations vs. financials matter. Here is an example. You buy an apartment building with a 10m loan. The building is fully leased with long term leases. It is not sitting on a toxic waste dump, is not filled with asbestos, etc. It generates enough cash to cover maintenance, management fees, taxes, etc. There is a problem. It does not generate enough cash to pay the 10m loan. Maybe it can only support a 8m loan. Look at Enron. They had many well run viable electric power plants that are still running today. They just needed to be separated from the massive fraudulent debt of the parent.
The project is a failure. Question – should you tear down the building? Probably not. The building is economically viable. The problem is that the price paid for the building was too high.
The rational course of action is to restructure to loan to 8m. (which kind of implies that the banks should size the building and push the current owners out.). Note, we are not making a judgment on how we got into debt. Bad judgment, over optimism, fraud, etc. We don't care. Assigning blame won't change how we get out.
Third, why exaggerate sales to get loans. Or to simplify your question, why commit fraud? Exaggerating sales is just a means to an end. Most accounting fraud starts off small with good intentions. One has a temporary short fall, there is a really good opportunity, normally I am so good a picking the ponies, etc. It's just going to be a few thousand. There is always a promise to make it up next week. Or the week after that. And after a few years and a few million dollars, people wonder where they went wrong.
The book is better, but here is a favorite of mine to explain why people commit fraud: Rogue Trader with Ewan McGregor as Nick Lesson
http://www.imdb.com/title/tt01...