Bernanke: Banks must get better at foreseeing risk

AP via Yahoo! ^ | May 15, 2008 | Jeannine Aversa

[Brilliant]

Commercial banks and other financial institutions need to beef up their ability to detect and protect themselves against risks like the credit and mortgage debacles, Federal Reserve Chairman Ben Bernanke said Thursday.

The trio of crises -- housing, credit and financial -- have exposed weaknesses in financial firms' so-called risk-management practices. That is their ability to sufficiently detect and hedge against risks. Banks and other financial players have racked up multibillion-dollar losses when investments in complex mortgage-backed securities soured with the collapse of the housing market. Credit problems in housing quickly spread to other areas, intensifying the turmoil.

"Improvements in banks' risk management will provide a more-stable financial system by making firms more resilient to shocks," Bernanke said in a speech to a Federal Reserve banking conference in Chicago.

Banks need to improve upon efforts to identify and measure risk, value their assets and liabilities, and prepare for "liquidity" disruptions, when access to cash or the ability to smoothly buy and sell can be impaired, the Fed chief said.

Regulators also need to bolster their oversight, Bernanke said.

"It is clear that supervisors must redouble their efforts to help organizations improve their risk-management practices," Bernanke said. "We have focused on the institutions in most need of improvement, but we will continue to remind the stronger institutions of the need to remain vigilant, particularly in light of the ongoing fragility of market conditions," he added.

Bernanke also called upon banks and other financial institutions to step up efforts to raise capital.

"Importantly, capital raising and balance sheet repair allow for the extension of new credit, which supports economic expansion," he said. "I strongly urge financial institutions to remain proactive in their capital-raising efforts. Doing so not only helps the broader economy but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve."

In his speech and fielding questions afterward, Bernanke did not give clues about the Fed's next move on interest rates or discuss the state of the U.S. economy.

To brace the wobbly economy, the Fed last month cut a key interest rate by one-quarter percentage point to 2 percent. At the same time, policymakers indicated that their rate-cutting campaign, which started in September, could be drawing to a close. They are hopeful that the Fed's powerful dose of rate cuts along with the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses will lift the country out of its slump later this year.

If the Fed does leave rates alone for a while, economists believe the central bank will focus more on its other efforts to help banks and big investment firms overcome credit stresses.

After a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy in March, fears grew that others might be in jeopardy, given major stresses in credit and financial markets at that time.

Scrambling to avert a market meltdown, the Fed -- in the broadest use of the central bank's lending authority since the 1930s -- agreed in March to temporarily let investment firms obtain emergency financing from the Fed, a privilege previously granted only to commercial banks. That's one of the Fed's most significant actions.

The Fed also has moved to make cash loans to commercial banks and to make super-safe Treasury securities available to investment firms. All these efforts are aimed at bolstering confidence and getting firms to behave in a more normal fashion so they'll be more inclined to lend to each other, consumers and businesses.

Over the years, the explosion of financial players and products has raised questions in academic and other circles about banks' role in credit markets and the financial system. Bernanke said the recent episodes of financial turmoil show that banks still play a "central role" in the credit system.

"In that respect, the problems, the losses that have been experienced by financial institutions, which have impacted their credit positions, do have some consequences for the broader economy," Bernanke said.

"What we're seeing right now is that firms are hunkering down. They have taken a lot of losses. They've at least partially replaced those losses with new capital raising but not entirely," he added. "They're also being very protective of their liquidity ... and, therefore, they're being rather conservative in making new loans, which has implications for the broader economy."

[Brilliant]

Personally, I do not see why the Fed doesn't tell the banks that they can't make 95% 50-year no-principal loans in the latter stages of a real estate boom. That's where the problem lies. And since the Federal Reserve is in charge of running the FDIC, you'd think that it would occur to Bernanke that it IS his business whether they do so.

[DuncanWaring]

Here’s an idea - don’t loan money to people who have no reasonable expectation of being able to pay it back.

[nicola_tesla]

So why do you think Bernanke is talking about risk ? You all need to read this.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=44844
http://market-ticker.denninger.net/2008/05/fraud-marches-on.html

The Fraud Marches On

Oh what a tangled web we weave, when we practice to deceive....

Freddie Mac posted their loss yesterday and as if on cue investors bid up the stock by nearly 10%.

Why? Well, look at how our government “regulates” those who refuse to be honest in their accounting:

“The company’s regulator, which only a month ago chastised Freddie Mac for questionable accounting policies, also recognized the results by reducing the size of the company’s financial safety cushion.”

Yeah, there we go. Accounting doesn’t matter, right?

Speaking of which, did ‘ya look at their Level 3 exposure?

Institutional Risk Analytics said this:

“’Both these companies are clearly going to be insolvent by the end of the year, but everyone knows that Congress will do anything to keep them afloat, because if Fannie and Freddie go under, the entire global financial system will melt down,’ said Christopher Whalen, a founder of Institutional Risk Analytics, an independent research firm. ‘These companies’ earnings don’t matter. Their accounting hardly matters. People buy the stock because they believe the federal government will bail them both out if things get really bad.’”

“Cooked” accounting is fine and the inability to earn a profit doesn’t matter, because “someone” will let us rip people off and then bail us out.

Does anyone care about the truth in American Business any more?

Oh there will be those “sacrificial lambs” offered up. Like, perhaps, Countrywide?

“Rejecting the arguments of Countrywide executives and directors that they were unaware of lax loan operations that led to ballooning defaults, Judge Mariana R. Pfaelzer of Federal District Court in Los Angeles ruled Tuesday that she found confidential witness accounts in the shareholder complaint to be credible and that they suggested ‘ widespread company culture that encouraged employees to push mortgages through without regard to underwriting standards.’”

No, really? The bankers would never lie, cheat and steal?

Will we ever see answers to exactly who wanted to buy PUTs on Bear Stearns 50% out of the money and requested the option market markers to open up those PUTs for speculation? Do you think we will ever see Congress subpoena those market makers and the OCC to get the names of people who made the requests, then stick them under oath and travel back up the chain until we get to the people who started this?

There is a long history of looting operations conducted by people with power and money.

In fact, there is plenty of evidence that The Federal Reserve was initially formed as part of such a looting operation conducted by bankers against certain institutions in the United States.

That was neither the first or last time such operations have been conducted.

Look at the history of the British banking system and its sovereign debt for yet another example.

Of course back then there weren’t computers, email, and logs, and the usual practice was to simply kill the person who you “planted” the rumor with after they initiated it so they couldn’t testify in a court as to where it all came from.

These days records have a nasty way of showing up at the most inopportune time, because we have gone from writing things down on paper to recording them in a computer and sending them around, and the latter often results in lots of copies being made that the originator isn’t aware of.

The discussion on “monetary system changes” continues to get lots of play at the forum.

Unfortunately the “I saw a witch, get the sticks, rope and kerosene!” reaction also continues, instead of focusing on where the real problems are.

This is why I wrote “How Freedom Dies”; it is very easy for people to focus at an area that does not really bear on the issue at hand and try to destroy it, because it’s the “most visible” means of retribution.

In doing so they give the fraudsters the very means to destroy them instead and history shows that every time you open up your kimono and give people with power and money a free shot they take it, much to your chagrin down the road.

The solution to this entire mess is the same that it was (but not taken) back when the Bank of England was essentially looted, and when our banking system was looted in the early 1900s - find the market participants who have engaged in fraud via various forms, whether they be mortgage bankers handing out liar loans and misrepresenting them as “AAA Prime” paper or whether they be people in the marketplace who initiated the plethora of (false) rumors over the last many years about various companies, irrespective of whether the intent was to drive prices up or down, and prosecute them.

We have existing laws that make that conduct illegal. Investigate the activity, charge the wrongdoers, prosecute them, get your convictions and toss the lot of ‘em in prison with a bunch of 7’ tall rapists in the exercise yard, no guards, and a $100 video camera in the guard shack.

Then post the “results” on YouTube as a warning to the world - try that again in this country and this is the consequence you will receive.

That will be the last time it happens.

But until we take that sort of step and hold people to account, this sort of “looting operation” will continue, and we the people will continue to get screwed.

As for the “CDS Mess”, I have a solution for that, but it requires that you understand how these things work.

Let’s say that you buy a CDS (Credit Default Swap) from me. You pay me $10,000 for “protection” against Company X defaulting. Let’s say that if Company X does default, I would have to pay you $100,000.

These trade based on the risk of that default from day to day.

Ok, now I, the guy who wrote that swap, go bust and can’t pay, and by the way, Company X does default.

How much do you lose?

If you say “$100,000!” you’re wrong.

You lose $10,000 - the amount that you paid for the swap.

Your opportunity cost is $100,000 (profit you should have gotten but didn’t) but your actual monetary loss is $10,000.

Ok, so why are these things such a big deal?

They are a big deal because “you” (the guy who bought the swap) have been “marking” your portfolio of bonds and other investments based on the claim that I can pay!

This is a lie, because “you” are well aware that I can’t fork up the coin. I simply don’t have it; the mathematics in this regard are simple.

You are committing fraud and claiming that you have a “good asset” because of this “wrap”, when in fact you are well aware that the wrap is worth nothing.

This is the basis of the claims that “we couldn’t allow Bear Stearns to fail.”

The entire claim and chain of events rests on the fact that market participants, up to and including Ben Bernanke at The Federal Reserve, were and are aware that these CDS contracts are in fact fraudulent in that there is no way performance can take place, yet everyone up and down the line is allowing these “assets” to be counted as “money good” on the books of banks and other financial institutions!

THIS is the key item in the debate folks.

The rest of this noise making is mental masturbation and intentional misdirection intended to keep you from asking the tough questions and demanding that existing law be enforced.

Congress and prosecutors across the board, both State and Federal, need to start bringing indictments, starting with the fraudulent accounting.

You can’t value something at “par” when you are well-aware that the underlying credit quality has gone straight in the toilet and that there is not a snowball’s chance in hell that the “insurance” you bought to protect yourself has no chance of being “money good.” As soon as you become aware of the impairment under the law you are required to reserve against it!

While any one company could claim that its insurance is “money good” that’s not the point.

Everyone in the marketplace today now has proof that these swaps in aggregate are worthless, with proof of this found in the fact that The Fed claimed under oath exactly that as justification for the Bear Stearns bailout!

So you have a situation here where the entire banking regulatory system has declared these contracts worthless in the aggregate and yet company after company continues to claim in their financial statements and results that these contracts are “money good”!

This is out and out fraud and must be stopped.

We the people are being systematically looted by these people and our prosecutorial apparatus sits on its butt and sips Starbucks Lattes instead of doing their job!

It is time for we the people to say ENOUGH.

Call Congress and demand that they stop this charade here and now. Every firm that has claimed their paper is “protected” by these wraps must be forced to identify the counterparty that currently holds the risk and those parties must be forced to prove that they can pay any and all claims against those policies.

If they can’t (and the default case must be “they can’t”, since that was in fact Bernanke’s and Geithner’s position under oath!) then those wraps must be considered “doubtful” and reserves must be taken against the underlying credit quality.

Do this and we immediately identify who is broke and who is not, the market finds its proper price for these assets, and as a consequence the market will clear.

Everyone wants to make this whole mess complicated.

Its not.

It is in fact very simple.

The only “complication” is that there are thousands of people who are ripping the American People off wholesale, waving their arms around in the hope that you’ll let them get away with it.

Don’t fall for it.

[org.whodat]

How about a simple 10% down payment and no loan over thirty years and no second mortgages for five years.

[Shermy]

Bernanke is getting pretty funny here.

Everything he has done in the last few months has insured lenders’ risk. In fact, lenders are now incentivized to take even more risk now since their car loans, credit card loans, etc. are now backed by the Fed.

[willgolfforfood]

Hey Bernie,

The reason that banks don't give a flying flip about how much money that they have at risk is because people like YOU rush in and give them hundreds of billions of AMERICAN dollars when all the risk they take bites them in the butt.

So WHY should they care about risk? You're willing to bail them out with MY money.

If bank officers lost their bonuses, and jobs, and went to jail for gross mismanagement, instead of YOU bailing them out with MY money, then they might do what you're asking, and learn better ways to control risk.

You moron.

[Brilliant]

Trying to regulate the details of these businesses is a waste of effort, and would be damaging to the economy. All you really need to do is put a limit on real estate loans in the latter stage of a real estate boom. Tell them they can’t loan more than say 80 or 85 percent of value. Tell them they can’t do no amortization loans. Tell them they can’t do loans of more than 30 or even 25 years. It’s these phony appraisals that get them every time. If you put limits on their ability to loan against the phony appraisals in the latter stages of the cycle, then you will drastically limit their risk, and at the same time, you will take some of the hot air out of the balloon.

The reason they don’t do it is that the Fed does not view that as part of its role. But if they are going to be insuring these banks with taxpayer money, then they better start thinking of it that way.

If non-bank institutions want to make the gamble, that’s their own business, but insured institutions should not be doing that.

[HamiltonJay]

Why Should they? You just guarnateed to bail them out.. jacka$$!

[super7man]

But first let’s have the government create the problem in the first place. Here as piece of a speech Bush gave in June of 2002.

“And so, therefore, I’ve called — yesterday, I called upon the private sector to help us and help the home buyers. We need more capital in the private markets for first-time, low-income buyers. And I’m proud to report that Fannie Mae has heard the call and, as I understand, it’s about $440 billion over a period of time. They’ve used their influence to create that much capital available for the type of home buyer we’re talking about here. It’s in their charter; it now needs to be implemented. Freddie Mac is interested in helping. I appreciate both of those agencies providing the underpinnings of good capital.

So... they pushed banks into giving loans to people who could not afford it, then blamed the banking industry when it went in the tank, then bailed them out.

It’s nuts.

[HamiltonJay]

Sorry, but the home buyers programs of the fed had nothing to do with the bubble that’s bursting.. I know it makes good talking point pinhead rhetoric for talk radio, but its not true.

This mess was created by pure and simple greed... Fools honestly thought they could remove risk from the lending equation... and money was so cheap and demand for mortgage backed securities so great that anyone breathing could get money.

Blaming it on the government is nonsensical.. It makes nice political rhetoric, but its not remotely true.. and I truly wish idiot pinheads on talk radio would either bother getting informed, or shut the hell up with it, because its not true.

Sub Prime never had anything to do with the mess, the mess that’s unravelling has little if anything to do with federally back loans, or FHA lending.

Big banks getting greedy looking at the sub prime and trying to push it, is why this mess happened, not because of federal legislation.

[RatRipper]

I guess we need to be as good as the Fed is at foreseeing risk. /s

Quote from RatRipper - former state bank examiner who worked side by side with Fed examiners for years, most of whom acted like Larry Tate lap dogs agreeing with their bosses no matter how ridiculous they were.

[LomanBill]

[Commercial banks and other financial institutions need to beef up their ability to detect and protect themselves against risks like the credit and mortgage debacles, Federal Reserve Chairman Ben Bernanke said Thursday.]

 

 

Yeah, whatever.

 

 

When I see the folks who were using those modified Empower loan origination screens to falsify FICO scores doing the orange jump suit boogy, then I'll take these kind of "reform" statements seriously. 

 

Until then, it's just more white paint on the turd pile.

[LomanBill]

1 Cor 6:9-11
 Do not be deceived: Neither the sexually immoral nor idolaters nor adulterers nor male prostitutes nor homosexual offenders 10 nor thieves nor the greedy nor drunkards nor slanderers nor swindlers will inherit the kingdom of God. 11 And that is what some of you were. But you were washed, you were sanctified, you were justified in the name of the Lord Jesus Christ and by the Spirit of our God.
NIV

 

 

Hmmm.... where would Jesus work?

[Travis McGee]

Heads we win, tails you lose.....until the music stops.

[LomanBill]

>>But until we take that sort of step and
>>hold people to account, this sort of “looting operation”
>>will continue, and we the people
>>will continue to get screwed.

Right on target.

Systems are maintained by individuals. If those individuals stop acting like blind, deaf and mute monkeys - and start acting like they have an honorable conscience...

“But I vas only following dah orders” didn’t cut it at Nuremberg, folks.

Do the right thing and shut em down!

[Freedom_Is_Not_Free]

We have a winner!

[nicola_tesla]

Exactly. The taxpayer is destined to be the bagholder under their plan. Us, our kids and their kids will be dealing with the national debt from this for decades if it doesn’t stop now.

[nicola_tesla]

Bailing out the banks and helping them hide their lack of reserves is not "Trying to regulate the details of these businesses", far from it.

You need to read this more closely, because clearly you didn't catch the implications or the repercussions.

Bernanke is enabling the banks to achieve an Enron-style level of accounting fraud, and the taxpayers, via the Fed/Treasury, are being put on the hook to make whole the banking losses, whether it's credit in the form of mortgages, credit cards, auto loans and other forms of toxic crap that are being hidden from us.

Take a good look at this:

If that doesn't make you understand that the banks are insolvent and being kept afloat by the Fed, then you need to go do some very basic research on the Fed and their role in banking.

As Warren Buffet said, it's only when the tide goes out that we see who's been swimming naked.

[nicola_tesla]

Huh ? This whole credit mess started unravelling when subprime loans started going bad in record numbers. It has now included Alt-A, prime Option ARMs, credit cards, auto and HELOCs.

The pushing of loans down to the subprime folks based on these federal programs got the whole ball rolling downhill. Why do you think these loans got securetized ? It wasn’t just becuse the banks wanted the fees, it was also so they didn’t have to service them.

For your pleasure: http://seekingalpha.com/article/70757-wamu-alt-a-pool-deteriorates-further

[nicola_tesla]

Got that right.

[Brilliant]

This proposed regulatory reform does a lot more than that, though. If you’re only opposed to bailing them out, then I would agree with you. As far as “hiding their lack of reserves” is concerned, I’ll agree that it might in some instances put the investors at greater risk, but they just need to get used to the fact that they are assuming that risk. Forcing banks to disclose that the emporer has no clothes is not going to help investors. It’s more likely to foment a run on the bank, and end up biting them. And at the same time, it will result in the FDIC having to pay off insured deposits. That’s the reason we have laws on the books making it illegal to spread rumors that a bank is insolvent, even if it’s true.

Unfortunately, this regulatory reform that is going thru addresses neither of those issues, and instead simply tells the banks what kinds of mortgages they can make, and how they’ve got to administer them when they go into default. That’s what I mean when I say “regulating the details of their business.” Congress is not able to solve this kind of problem with those kinds of measures. They’ve been tried before, and have failed. There were a whole slew of such measures during the Depression. They obviously did not fix the problem. When government gets involved in that kind of thing, it generally makes things worse. In fact, a large part of the current problem was caused by the fact that the government encouraged banks to make loans to subprime borrowers thru measures like that.

[nicola_tesla]

Why do you suppose we have a reserve requirement ? So, in your words, “in some instances put the investors at greater risk, but they just need to get used to the fact that they are assuming that risk”.

Again, you did not at all read or comprehend what I posted originally.

It’s the total lack of transparency, the lying and the Fed backstopping bad bank decisions a la Bear Sterns that is the problem. Tell me, how can investors “assume that risk”, again in your words, when the Fed conspires to hide and cover up that very same risk ? In fact what risk, if the Fed will use Treasuries to mitigate the risk ?

Where does it stop ?

Yes, we have a major banking problem on our hands. The fact is that most banks in the US are totally insolvent and would already have failed if the Fed hadn’t created the TAF and the TSFL to take bad loans in exchange for Treasuries ? And how accounting standards are being used to hide all the problems, as my original post documented ?

Do any of us want bank runs ? No of course not, but what is worse - failed banks that are honest about their problems and using the FDIC, ie the taxpayer, to make depositors whole, or the continued lying and thievery of the taxpayer to the banks sole benefit ? With bank failures you stop the bleeding and get rid of the bad actors. Maybe, like Enron, you prosecute the fraudsters so it doesn’t happen again. If we don’t, with the shenanigans going on now at all levels of the economic system, more and more is at risk for a much larger blowup in the future.

[Brilliant]

Believe me, the Fed knows what their financial condition is. So it’s not a TOTAL lack of transparency. There is only so much public opaqueness than the banks can get away with, as well, given the securities regulations, but I’ll grant you that they get away with more of it than your average corporation, and the reason is these laws and policies which are designed to prevent runs on the banks. I own bank stocks. The last thing I want is for there to be a run on the bank. The last thing the Fed wants is for there to be a run on the bank. Of course, it is illogical that depositors would withdraw their money due to bank insolvency, given that the Feds insure the deposits, but they do it, as history has shown.

No, I don’t think that complete transparency is in the public interest when it comes to banks. There is a reason why we have these laws.

And by the way, I am not aware of any provision in these reform bills that would change that. What they want to do is tell the banks who they can and cannot lend to, what the terms of the loan will be, and how they’ve got to administer them. Those things are not so much the problem, though. The real problem is that the banks do not adjust their lending policies quickly enough in response to the real estate cycle. They keep lending freely even though it is clear that the real estate market is in the latter stages of the cycle, and that real estate values will soon be declining.

Of course, there is a certain amount of second guessing to that, but I fail to see what harm would come from the Fed (which probably reads the tea leaves sooner than the rest of us) imposing tighter lending restrictions on the banks in the latter stage of a real estate cycle, in order to protect the FDIC from having to take over insolvent banks. Afterall, it just means that borrowers will have to look elsewhere for their 95% to value loans. Banks are not the only source of mortgage loans.

[nicola_tesla]

I don’t think that complete transparency is in the public interest when it comes to banks.

No ? Let's get right down to brass tacks. The banks are publicly-held corporations. Accounting standards are supposed to make the corporations keep books that tell the true story of the profit and loss prospects of the corporation. On that basis one may or may not invest in the corporation.

You think that a public corporation should be able to lie about their accounting with the help of the regulators, to file false reports based on fake numbers, to deceive the public and their investors of their true state of profit and loss ?

Without truth and transparency, there is no basis for trust and no ability to do business. The only thing keeping the banks in business is the Fed and behind them, the taxpayers.

I'm stunned that anyone thinks a bank should be allowed to cook the books with the help of their regulator. Talk about elitist mentality - we the banking elites know what is good for the little people and will control information accordingly.

Bend over, this country is hosed.

[Brilliant]

They obviously can’t “cook the books” without violating the securities laws. But they also have less transparency than your average corporation. They aren’t your average corporation. They are insured by the federal government (i.e. taxpayer). Unless you want to pay higher taxes to bail out depositors at every bank that has difficulty meeting its reserve requirement, then this is a risk we’ve got to live with. And investors like me understand that. If you know that risk is there, then you can either choose to assume it, or elect not to invest in a bank.

The check on these banks is not just the threat of punishment by investors and but also the threat of punishment by the FDIC. The FDIC regularly forces banks to change their policies, if they represent unsafe banking.

We would have been better off if the FDIC had told the banks in 2004 that they could no longer make 95% loan to value loans. Not only would the banks not be in deep doo-doo, but the real estate bubble would have grown more slowly. We would probably be in a growing housing cycle right now, and they would soon be telling the banks that they could only loan up to 85% loan to value.

[HamiltonJay]

BS,

The sub prime market had nothing to do with federal regs. This talking point pinhead talk show BS has to stop.

Sub Prime which had always been a fringe player has been around for a long time.. the thing that screwed the pooch was simply this.

Go take a look, easy to understand pictures even:

http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1

The big players wanted in on the game, they believed they could get rid of risk by repackaging these loans into things like CDO’s and CMO’s they marketed this crap as AAA securities and they were bought up by the handfulls... so much demand for them that they couldn’t keep up with writing enough loans, so more and more loans were written to worse and worse credit risks, just to keep the cashflow going.. and finally the whole house of cards started to collapse. It had nothing to do with federal lending requirements etc. That’s such ignorant tripe that it is laughable that people are that misinformed and naive that they believe and buy into that political rhetoric.

Greed, pure and simple was what was behind the mtg mess, nothing more.

[nicola_tesla]

I’m sorry, but you are so misguided that I have to wonder about your agenda.

The banks aren’t an “average corporation” ? Tell me, is there a section of corporate law that exempts the banks from regular accounting standards ?

BANKS are not insured by the federal government, THE DEPOSITORS ARE !!!! Big difference.

You are excusing fraud perpetrated on investors and taxpayers alike by these entities. Is the bank insolvent ? Shhhh, don’t tell depositors so at least some can get their money out. Shhhh, don’t tell investors so they can understand the true risk and can sell the stock if they don’t want to assume it.

As I said in my previous posts, the banks with the acquiescence of their regulators - the Fed, the FDIC, Congress - are lying to us all, and people like you think it’s just fine because the banks aren’t the “average corporation”.

Follow the money - who benefits ? Not the taxpayer, not the depositor, and not the investor. Who, then, benefits from the lying ?

Buddy, you and everyone who thinks like you are part of the problem.

[nicola_tesla]

It had everything to do with the gutting of the Glass-Stegal Act, the monoline insurers giving AAA ratings to crap, borrowers comitting fraud in stated income loans, loan originators not doing due diligence, and the ability of the banks to repackage same into securities to sell to suckers who were misled by the AAA ratings.

An interesting read: http://www.streetsmartreport.com/school/Commentaries/My%202006%20Wish%20for%20the%20U.S.%20Financial%20System.html

[nicola_tesla]

BTW, great link, I really like it. :)

[Brilliant]

“Tell me, is there a section of corporate law that exempts the banks from regular accounting standards ?”

I don’t think you understand what the banks are doing. They aren’t defrauding you. They use the same accounting standards that everyone else does. They just don’t report as much as you would like. Their accountants don’t issue the report you’d like which says, “We cannot give an opinion that this company will be able to continue as a going concern.”

If that’s the only thing that separates you as an investor from the pit, then you really should not be investing in banks.

[nicola_tesla]

You have a moving target problem.

You were the one who claimed that banks weren’t the “average corporation” and could be excused transparency because they were backstopped by the taxpayer.

It has nothing to do with what I’d “like”, and everything to do with trust.

Read again my original post.

[VideoDoctor]

I, and several others are not sure we follow your logic.

I'm not too sure why you're using the handle of "Brilliant"???
Much of what you're saying sounds like circular reasoning.

[Brilliant]

They aren’t the average corp, and they don’t have the same transparency that the average corp does. But you are vastly overstating the difference between banks and the average corp.

A lot of the stuff we’re seeing now has less to do with transparency, and more to do with the real estate bust. Suddenly assets which were thought to be worth par are now worth much less. How much less, no one really knows. Your opinion of their value is obviously not as high as the banks’ opinion of their value, but I would hardly call that fraud.

The pundits were convinced that ETrade was going bankrupt, then Countrywide, then Bear Stearns... Of course none of them did go bankrupt, so the pundits who think these assets are worthless, and that the banks are committing massive fraud, don’t have a particularly good track record. Interestingly, none of those 3 institutions is actually a bank, though. ETrade owns a bank, and perhaps Countrywide, but Bear is simply a broker. So it seems that the greater transparency that non-bank institutions have doesn’t help very much, does it?

[nicola_tesla]

There you go again with the “They aren’t the average corp, and they don’t have the same transparency that the average corp does” crap when in a prior post you say they follow the same accounting rules as any other corporation.

I see you have “truth” deficit - is your last name Clinton, by any chance ? What’s the meaning of the word “is” ? Either they is, or they ain’t - but you have to choose. Either-or, not both.

[nicola_tesla]

No kidding. I think the reason we can’t follow the logic is because there is none.

[Brilliant]

They do follow the same account rules. But there are varying degrees of transparency even within the account rules. Accounting is not an exact science.