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.