The $5 Billion Mulligan

Banks insist their credit problems are over. Why on earth do investors believe them?

By Daniel Gross
Posted Tuesday, Oct. 9, 2007, at 2:14 PM ET

Ordinarily, investors fret when companies have to write down the value of shoddy investments. "Write-downs," "write-offs," "mark-to-market adjustments"—whatever you want to call them—are admissions that a company woefully overestimated the value of assets on its books. Write-downs should be especially worrisome when taken by banks, since they are in the business of valuing financial instruments. And yet in recent weeks, as the nation's blue-chip investment banks—Bear Stearns, Merrill Lynch, Citigroup, and others—have announced multibillion-dollar write-downs because of poor lending decisions, their stocks have risen.