Based on fair-value accounting rules, Goldman forced lower fire-sale marks on the industry which put some financial institutions out of business almost overnight.
Other government policies that have distorted financial markets, thereby undermining the EMH, include shielding credit-rating agencies from lawsuits, government-sanctioned fair-value accounting rules, enforcing credit-default swaps where there is no insurable interest, mispriced deposit insurance, government-sponsored enterprises, and the over-promotion of home ownership.
The most immediate is the mark-to-market, or so-called fair-value accounting, rules that regulators have been enforcing since the early 1990s.
Most investors are not aware of how many corporate managers destroy shareholder value because accounting rules allow them to erase their mistakes from financial statements.
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More controversially, the government plans to suspend mark-to-market accounting rules, which force banks to value their holdings at market prices.
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But there would probably be only a limited impact on capital because accounting rules give banks wide latitude in calculating the net present value of the bonds, enabling them to reduce the hit they would take to capital.
The Plaza Group claims in bankruptcy filings that it was undone by recent accounting rules that force private equity partnerships to write down the value of their investments in accordance with market valuations, as opposed to holding them at cost.
New accounting rules demand that they start valuing their equity portfolios at market value at the end of this month, which could constrain their ability to pay dividends out of retained earnings.
And, in the new financial year, changed accounting rules will oblige banks to carry shares on their books at market value.
He recognized decades ago the way executives can manipulate numbers and accounting rules. (Even today reported earnings are often taken at face value.) Jim saw the importance of institutional money managers before other publications did.
Accounting rules mean that once its share of AngloGold Ashanti falls below 50%, the value of that holding can be reflected in its books at market price, as an investment.
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