Enron and WorldCom scandals aside, Sarbanes-Oxley in place to ensure that none of those shenanigans take place again, Wall Street bankers (you know, those guys who either caused, exacerbated, or did nothing about the Mortgage Meltdown, have chosen to exploit a little-known accounting trick that allows them to record as appreciating assets those loans they've made that have turned south.
It truly is a case of -1-1=2.
The rule, intended to expand the "mark-to-market'' accounting that banks use to record profits or losses on trading assets, allows them to report gains when market prices for their liabilities fall.The FASB rule (the "governing" board of the accounting profession) went into effect after investment banks and other financial institutions lobbied the group for a rule change.
The rule was enacted after lobbying by New York-based companies, led by Merrill, Morgan Stanley, Goldman Sachs Group Inc. and Citigroup, which wrote letters to FASB arguing that it wasn't fair to make them mark their assets to market value if they couldn't also mark their liabilities.It's a perverse outcome of the continuing mortgage debacle. Using the rule certainly doesn't make the problem go away, but it surely makes it look a little rosier than it really is.
The "transparency" that Sarbanes was supposed to foster has been distorted time and time again by those clever gents in their 3-piece Armani suits. Gotta love capitalism!
Read the whole store here Bloomberg.com.
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