Defaulting banks - where will it stop?

[Jan Klimkowski]

April 17 (Bloomberg) -- Citigroup Inc., the U.S. bank rescued by $45 billion in U.S. taxpayer funds, ended a five- quarter losing streak with a $1.6 billion profit on trading gains and an accounting benefit for companies in distress.

:congrats:

Hurrah. We've hit rock bottom. The financial crisis is over.

Um. No.

tupido2:

Apart from all the obvious BS and taxpayer looting, Karl Denninger has noticed some book cooking going down.....

Citigroup posted a $2.5 billion gain because of an accounting change adopted in 2007. Under the rule, companies are allowed to record any declines in the market value of their own debt as an unrealized gain. The rule reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit.

If you want to talk about obscene, that is obscene balance sheet game-playing. What this means is that a firm that has its credit quality decrease, and therefore the trading price of its bonds go down (meaning the market thinks the firm is more likely to default) is able to claim that change as a profit!

Why? Because the firm could "buy back its own debt" at a discount.

Note carefully - the firm doesn't actually have to buy it back (that would be reasonable - book the profit from an actual realized gain) but because it could it gets to book that as a paper "profit" on its financials.

http://market-ticker.org/archives/965-Ci...-More.html