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Back in 08/09 I tried to make fun of a piece of accounting magic called FASB-159. It works like this: sell as much debt as you can during good times and, when things go bad and your debt's value plunges, the decrease in your debt's market value becomes an increase in your earnings, effectively. As you can imagine, this was a huge help to banks' earnings reports back then -- the worse off your are in your credit outlook, the better off you are in earnings.

FASB rules are so screwed up it's easy to make fun of them. But I suspect it's hard to beat FASB-159. It's wrong on so many levels, I'm not sure where to start -- let's just call it stupid simply because the end result is non-sensical, shall we? It's amazing that FASB has managed to stay under the radar of public outrage. It is without a doubt one of the top criminal institutions directly responsible for the over-growth of the financial sector, the off-balance-sheet scam, and increasing opacity of corporate earnings over the past two decades.

As Bloomberg reports, banks will get a huge boost this quarter from the same twisted black magic because FINL credits have taken a big beating since late April.

Will the market be wise enough to parse out the scandalous "earnings"? I wish I could say yes. I could only hope.

Disclosure: Long straddles on FAS

Source: Will Accounting Magic Rescue Banks Again?