How to Profit From the 10 Biggest Wall Street Lies of 2009

#2 New Accounting Rules Show Banks Are All Right

Earlier in the year, U.S. lawmakers and financial companies pressured the Financial Accounting Standards Board (FASB) into changing its rules to
help out the banks. “Changes to fair-value, or mark-to-market accounting … allow companies to use ‘significant’ judgment in gauging prices
of some investments on their books, including mortgage-backed securities,” wrote
Bloomberg. “Significant judgment” really meant “whatever the hell the banks wanted to do.” And these are the same banks whose “judgment” led them
to buy toxic assets in the first place and took the world to the brink of financial collapse.

According to analysts, under the amended rules, banks such as Citigroup (C)
could cut their reported losses by an estimated 50-70% — on paper, that is. How’s that? Well, if a bank says they cannot sell a security because
the market is illiquid, they can keep it on their balance sheet at a value they decide it is worth. Not only are they picking their own price,
the banks are determining the definition of illiquid. I get that the market is illiquid, but that does not mean their assets are not still there,
or that they won’t strangle the banks over time. It just means the banks have been able to produce legal-but-false earnings quarter after quarter … but
they can’t do this forever.

Lesson for investors in 2010: Expect to see more writedowns from big banks than currently forecast, which will impact their earnings.
(Learn two ways you can go about shorting
the financials.)

Next: #3 The Recession Has Officially Ended