I think you’re reading this backwards. You say that people owe them money. You are right but what I think you are forgetting is that these financial institutions issue truck loads of bonds where they owe the bondholders money.

What FASB allows from an accounting perspective is reality… The company, if solvent enough, can go out there and buy back a lot of their bonds that have fallen in value due to the financial institution’s deteriorated debt rating.

Bond buy-backs are being employed by many of the gaming companies trying to avoid bankruptcy right now. (I live in Las Vegas and these reports are all over the media. Harrah’s just purchased back some of their debt at greatly reduced prices due to their now crappy credit.)

I don’t know what you guys think but this makes sense to me. If they can go out there and retire a bunch of their debt at prices way less than face value, that’s a gain in my book. They gain by being able to retire the debt at a way lower amount than they otherwise would have.

I wish I could go out and buy back my house’s loan for it’s face value out on the market. We should be allowed to do that just like corporations can with their debt to get ourselves out of this pickle.

Wells Fargo stock remains at about 50% of its former value and they have HUGE exposure to commercial real estate losses and future residential mortgage losses. I sold out at $33 and I’m not looking back.

Igor is on task, the economic education of the average American is “sad.”

i have a couple ideas of my own. let’s drive a million chevys off of a cliff…..inventory will be down x% which would indicate chevys rebound. then, bulldose a few empty but developed neighborhoods around the valley….poof!!!! inventory is down form last month so obviously the housing market is rebounding!!! i’d also like to rename detroit as atlantis. atlantis has no prior year numbers to compare so we could just take detroit out of the housing stats, unemployment stats, etc…..EVERYTHING will look better.

Wait, what?

People owe them money, but the money owed is worth less than before, therefore they profited by the difference?

Ok, right.. so in reality, they went from a 5.11 billion loss to a .9 billion loss (1.6 – 2.5 from a bogus rule). Give those guys more bonuses!

I thought Enron taught us that while “thinking outside the box” was a good trait, it was NOT one you wanted in your accouting team…

Ya know, looking at things now, I’m *so* glad my parents made me actually go to class and do my homework and learn basic math skills.

“Would you buy it for a quarter?” Remember it was fiddling at the boundaries of financial reporting periods, the infamous cookie jar accounts, that did in Frank Raines and the gang at Fannie Mae.

Here’s more suspect "good news":

The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little … funny.

Wells Fargo, for example, announced its best quarterly earnings ever. But a bank’s reported earnings aren’t a hard number, like sales; for example, they depend a lot on the amount the bank sets aside to cover expected future losses on its loans. And some analysts expressed considerable doubt about Wells Fargo’s assumptions, as well as other accounting issues.

Meanwhile, Goldman Sachs announced a huge jump in profits from fourth-quarter 2008 to first-quarter 2009. But as analysts quickly noticed, Goldman changed its definition of “quarter” (in response to a change in its legal status), so that — I kid you not — the month of December, which happened to be a bad one for the bank, disappeared from this comparison.

How can you change the definition of "quarter"?

Here’s Google News’ top biz story as of a couple of minutes ago. I guess you get your confidence where you can find it

“Citigroup Says It Has Its Best Quarter Since Early 2007″, by Matthew Saltmarsh, New York Times, April 17, 2009.

The New York-based bank reported first-quarter net income of $1.6 billion, after posting a loss of $5.11 billion in the period a year earlier. Revenue was $24.8 billion, up 99 percent.

The earnings were helped by an accounting change that allowed the bank to post a one-time gain of $2.5 billion. Under the rule, companies are allowed to record any declines in the market value of their debt as an unrealized gain.