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>Accounting Gimmicks:Watch Out!

Don’t Listen to People Like Newt Gingrich on Economic Issues
Congressmen, Senators, lobbyists and the financial press are all talking about it. “Mark-to-Market.” It’s an accounting standard and government regulation they’re trying to get off the books – and soon! Newt Gingrich actually suggested that the US government wouldn’t have to throw so much money at bankrupt companies if we made the change from Mark-to-market. It’s a lie. Sooner or later it will catch up with you and your government will have to keep throwing money at a problem that won’t go away.

Why? Because desperate banks are trying to fraudulently prop up their balance sheets and stay in business. Thanks to Treasury Secretary Hank Paulson, generally this has not been the case in the US.

“Mark-to-Market” works like this: If you bought a share of GM for $8 and it closes at $6 today, you just lost $2, on the books. But now the banks are scared. They’re holding hundreds of billions of dollars of mortgage-backed debt obligations and credit default swaps that are worth squat. And they want to hide their losses.

We say go ahead and try to hide them… savvy investors will track these people down, allowing “everyday” investors to get rich on their deception.

Here’s an example:
In Europe, this standard has already been changed to accommodate hurting banks. One in particular just avoided a $843 million euro write-down – and just posted a net income of 414 million euros. The reality is, it should be posting a 122 million euro loss! Now, if I’m an investor in that bank–or someone who wants to invest in it–if I invest money in that bank with the understanding it is making money I’m duped because it isn’t. It’s belly-up.

The stock rose 18% on the earnings news. But who’s fooled. This giant bank will soon have to take write-downs.

And when it does, smart investors will be there making 50% to 75% shorting this puppy, sure as the sun will rise.

Even former congressman Newt Gringrich was trying to pawn off this changing of “mark-to-market” to a “rolling averge” as legitimate financial advice in front of Fox TV viewers several weeks ago. It’s fraud, subterfuge, a deceptive stratagem. I don’t know where this non-economical brain got the idea that you could avoid the inevitable by calling a dead horse a live one. Real economists know that those who deal in those kinds of artifices end up injuring people in the end. Newt had no business trying to pull this over on unsuspecting voters.