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Fed Is Propping Up Companies It Had Warned Banks Not to Touch

  • Indebtedness will be measured using adjusted earnings
  • Fed had criticized leveraged borrowers for abusing adjustments
The U.S. Federal Reserve building stands in Washington D.C.
Photographer: Brendan Smialowski/Bloomberg

For years, the Federal Reserve warned that too many highly risky companies were engaging in fuzzy accounting that bumped up their earnings -- making it easier for them to obtain loans. The practice was driving up corporate debt to excessive and worrisome levels, regulators chastised.

But now, in its latest effort to keep credit flowing, the Fed has done a remarkable about-face. It essentially endorsed the dubious practice with a program that may serve to bail out some of America’s most leveraged companies.