Monday, June 2, 2008

Leave it to Wall Street to call it chicken salad Exclusive

Wall Street Says -2 + -2 = 4 as Liabilities Get New Bond Math

By Bradley Keoun

June 2 (Bloomberg) -- Leave it to Wall Street to profit from
its own distress.

Merrill Lynch & Co., Citigroup Inc. and four other U.S.
financial companies have used an accounting rule adopted last year
to book almost $12 billion of revenue after a decline in prices of
their own bonds. The rule, intended to expand the ``mark-to-
market'' accounting that banks use to record profits or losses on
trading assets, allows them to report gains when market prices for
their liabilities fall.

The new math, while legal, defies common sense. Merrill, the
third-biggest U.S. securities firm, added $4 billion of revenue
during the past three quarters as the market value of its debt
fell. That was the result of higher yields demanded by investors
spooked by the New York-based company's $37 billion of writedowns
from assets hurt by the collapse of the subprime mortgage market.

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