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Thursday, April 17, 2008

The degradation of accounting by Martin Hutchinson FROM PrudentBear.com

Mark to market accounting spread beyond the traditional investment banks around the late 1980s. Its great advantage, to executives who were for the first time paid a large portion of their remuneration based on profits, was that values could be marked up as well as down. No longer did you have to sell that illiquid investment in order to realize a profit on it and be paid a bonus; you could now recognize its increase in value on an annual basis. Conventional book value accounting was derided as being old-fashioned, and the original acquisition cost of a position scorned as being hopelessly irrelevant to an up-to-the-minute valuation.

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