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Wall Street Faults Rules on Writedowns

Critics say accounting rules exaggerate losses, hinder market

By Jim O'Neill,  Newser User

Posted Mar 1, 2008 12:09 PM CST
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(Newser) – After months of staggering writedowns battering Wall Street, some investors and executives are charging that accounting rules are exaggerating losses and triggering slumps like yesterday’s 315-point plunge in the Dow, reports the Wall Street Journal.
Rules requiring companies to value holdings at current market rates, no matter how volatile, have a domino effect, they say: "The market falls, forcing banks to take write-offs, pushing the market lower, causing more write-offs," the Journal writes.

Investors want a change, but even Fed Chairman Ben Bernanke is at a loss as to what to do: "I don't know how to fix it," he told Congress Thursday. Pricing models that don't use market values were discredited after Enron used them to book phantom profits. Execs counter that  firms won't suffer the full losses they've been forced to book, as they hold investments until the markets recover from the current panic. AIG’s announced $11.1 billion writedown, which triggered yesterday's sell-off, may never actually result in a true charge to the company, the CEO said yesterday.

A building of the UBS bank in Zurich, Switzerland.
A building of the UBS bank in Zurich, Switzerland.   (Associated Press)
Federal Reserve Chairman Ben Bernanke.
Federal Reserve Chairman Ben Bernanke.   (Associated Press)
Wall Street has been battered by billions in writedowns.
Wall Street has been battered by billions in writedowns.   (Getty Images)
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McClatchy writes down newspapers $1.47 billion
Bloomberg

What is a write down?
Wikipedia

There can be good news behind write downs
Wall Street Journal

 
Wall Street • investors • Federal Reserve • UBS • AIG • write down • subprime crisis • financial crisis

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