MBIA Inc just posted an unexpected Q2 gain today becoming the second bond insurer who used a 1 year old accounting rule to it’s full advantage. Analysts were expecting a loss of $1.37 a share but after the accounting shenanigans MBIA posted a gain of $7.41 a share.

I wrote how Ambac earlier in the week pulled the same accounting stunt so I won’t rehash the accounting rule changes that allows these bond insurers with exposure to the CDO market to post these large, surprise Q2 earnings increases.

Suffice it to say, these “mark-to-market” liability writedowns at least on paper dramatically improve earnings. MBIA Inc’s $7.41 a share number comes after two quarters of multi-billion dollar writedowns of their assets, which led to huge losses for MBIA.

In other words, the new accounting rule allows bond insurers including MBIA to turn “bad news into good” a few months down the road.

I don’t buy it…and neither should you.

But of course, investors are responding positively. Report good news get a boost to your stock price.

Don’t investor read anything but earnings headlines before investing their money?

Good Luck!

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