[Kosh]

What the hell kind of mickey mouse system is this?

June 2 (Bloomberg) -- Leave it to Wall Street to profit from its own distress.

Merrill Lynch & Co., Citigroup Inc. and four other U.S. financial companies have used an accounting rule adopted last year to book almost $12 billion of revenue after a decline in prices of their own bonds. 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 new math, while legal, defies common sense. Merrill, the third-biggest U.S. securities firm, added $4 billion of revenue during the past three quarters as the market value of its debt fell. That was the result of higher yields demanded by investors spooked by the New York-based company's $37 billion of writedowns from assets hurt by the collapse of the subprime mortgage market.

``They can post substantial gains as a result of a decline in their own creditworthiness,'' said James Cataldo, a former director of treasury risk management for the Federal Home Loan Bank of Boston and now an assistant professor of accounting at Suffolk University in Boston. ``It's completely legitimate, but it doesn't make sense by any way we currently have of thinking of net income.''

About the section bolded by me, mark to market accounting is actually the same accounting system Enron used to record profits that didn't actually exist. For example: Enron's deal with blockbuster to provide a video on demand service, but the deal fell apart before it had even started. Enron used mark-to-market accoutning to book millions in profits (because that is what someone believed that is what they could have made had the deal held together for several years), even though in reality the deal didn't earn them a single cent. Looks like we haven't learned anything from this. 

[Colonol Dekker]

At first glance i see similarities to Enron, but based on past dealings with Citigroup in a professional capacity i think i need to give this about 3 weeks to see if anything "develops" that's absolutely all i'm saying on the matter.

You never know when the "Interweblawyertaskforcecommando's" are watching.

Thanks for bringing it up though. I'm very interested to see where this goes...

[karajorma]

We should tax them on those profits. And then see how quick they are to claim them.

[Kosh]

Personally I think this shows just how desperate these guys are to keep the US financial system afloat.