Wall Street's WMD of Choice Is ACCOUNTING.

[laundry_queen]

6. Yep. A large issue, IMO

and this is not something I learned in school (taking business right now, mostly accounting, some finance), this is just the reasoning I've put together, is that with new IFRS rules concerning recording assets as fair market value, this kind of 'creating value out of thin air' will become more prevalent. Most accountants will take their clients words for it that X asset is worth so much $. All the client has to say for proof of value is "look what it's selling for" and the accountant will record that asset at FMV. Never mind that there is no intrinsic value to the instrument, it's what that asset is worth on the open market. Gone are the days of using historical cost for valuation.

I watched the move 'Margin call' several weeks ago and it depicts the demise of a large investment firm (it never says which one, but it mirrors some of the failures in 2008) due to a valuation of assets based on one (erroneous) estimate inserted into a particular valuation equation. Unfortunately there are likely hundreds of investment firms with the same issues. The accountants that enable them give the profession a bad name and should be shut down a la Arthur Andersen.

ETA: I also watched a documentary about Bernie Madoff and I think people are going to have to realize the SEC is pretty useless in controlling this type of fraud. Half of them once sat on the boards of these large investment firms that profited off of people like Bernie Madoff.