http://market-ticker.denninger.net/archives/2171-Now-Its-Front-Page-Banks-Lie.html
The question is: Did Congress realize just what it was endorsing and if it did just what does that mean.
Well gee, finally someone in the "mainstream media" writes about it?
A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.
The article points out that this is legal. Is it?
Isn't fraud all about intent to mislead?
Since then, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could be punished.
That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time.
So let's see if I get this right:
•Since The Federal Government made lying about balance sheet assets legal, banks have done a lot of that. Indeed, none other than John Dugan Office of the Comptroller of the Currency (OCC) testified yesterday that the marks being taken are unrealistic - that is, banks are overstating the value of their assets, when under questioning before the FCIC he said out loud what I've been saying for over a year: we know banks are lying because when they fail and the FDIC closes them we discover that their so-called "assets" are worth as little as half of what they've been claiming just a few weeks or months before.
•On average these institutions are taking 42% more risk to produce the "returns" they're posting at each quarter's end. Put a different way the firm's operating results are enriched on paper by 40% over what they would be in terms of common accounting ratios were the bank NOT to play these games. Or, if you prefer, were the bank not to use those schemes their results would probably be about 40% poorer - and indeed, a reported "profit" would likely be an actual operating loss.
