The big banks and trading houses are reporting apparently excellent earnings this quarter. Current results are taking place though because of accounting rule changes and not because of economic recovery.
If you can't win under the existing rules of the game, simply change the rules. Wall Street firms were losing big money during the Credit Crisis, but not only did the federal government come to their rescue with truckloads of taxpayer money, but accounting rule changes were also instituted to make their financial position look much stronger. The much improved earnings for the banks (NYSEArca: KBE) and investment houses (NYSEArca: IAI) showing up today are the result of both and not an improved economy.
After a record earnings year in 2007, built on a highly leveraged sub-prime mortgage pyramid, things started to go terribly wrong on Wall Street. Mark to market accounting was forcing firms to value their sub-prime paper at fire sale prices. This caused massive losses.
See full Article.
Posts
