Transparancy In Government – Banking
by admin on Mar.08, 2010, under All
Your bank is lying to you about its financial soundness, and not only does the Federal government not care, they encourage it. Forget your partisan bickering and ideological bent; the truth is, the banking industry now runs the executive and legislative branch of the Federal government. Let the truth speak for itself.
Every Friday afternoon, after the financial markets close, the FDIC posts a list of the banks it closed down during the week. These banks are closed down because they simply do not have enough money to continue operations. In financial terms, their liabilities exceed their assets. In everyday terms, they are broke.
Financial system blogger Karl Denninger noted this past Friday that based on the FDIC’s own press releases, the published Assets of the banks are consitenly higher than their Liabilities. Quoting from Denninger’s post:
“Waterford Bank, Germantown MD: $155.6 million in assets, $156.4 in insured deposits. They were “underwater” by $800,000, right? Wrong: Estimated loss, $51 million. That is, the assets of $155.6 million were overvalued by approximately 30% at the time of seizure.
Bank of Illinois, Normal IL: $211.7 million in assets, $198.5 million in deposits. They were “underwater” by $13.2 million (which is why they were seized), right? Wrong: Estimated loss $53.7 million. That is, the the assets of $211.7 million were overvalued by more than 25% at the time of seizure.
Sun American Bank, Boca Raton FL: $535.7 million in assets (so they claimed anyway), $443.5 million in total deposits. Heh, why did you seize them – they have more assets than liabilities? Oh wait: Estimated loss: $103.8 million, so the actual assets are worth $443.5 – $103.8, or $339.7 million. That is, the assets of $535.7 million were overvalued by a whopping 37% at the time of seizure.”
These are not exceptions. If you go back over the FDIC press releases describing the hundreds of banks closed over the past year or more, the same story is told over and again.
So, I sent an email to the FDIC asking how it is that book value of a bank can be so far ABOVE the real value. Here is the response that I received:
“That’s the value the bank had them on their books on their year-end financials, but the true value is much less. It is similar to someone in Las Vegas saying that their house is worth $300,000 because that’s what they paid for it three years ago, but the reality is, if they had to sell it in today’s market, they’d only get $250,000 for it. The FDIC has to sell assets in today’s market. “
The fact is that the balance sheet of every bank in the country is grossly overstated, probably in the range of 25-40%. And, this deceit is perfectly legal, thanks to the work of our current financial leaders. Up until 2009, banks were required to mark the value of assets to the market price. Therefore, if the value of real estate dropped, and defaults rose, the value of derivatives such as mortgage backed securities would have to be lowered. Here, from Wikipedia is a brief history of the key changes:
“On December 30, 2008, the SEC issued its report under Sec. 133 and decided not to suspend mark-to-market accounting.[17]
On March 10, 2009, In remarks made in the Council on Foreign Relations in Washington, Federal Reserve Chairman Ben Bernanke said, “We should review regulatory policies and accounting rules to ensure that they do not induce excessive (swings in the financial system and economy)”.
On April 9, 2009, FASB issued the official update to FAS 157[20] that eases the mark-to-market rules when the market is unsteady or inactive. Early adopters were allowed to apply the ruling as of March 15, 2009, and the rest as of June 15, 2009. It was anticipated that these changes could significantly boost banks’ statements of earnings and allow them to defer reporting losses.[21] The changes, however, affected accounting standards applicable to a broad range of derivatives, not just banks holding mortgage-backed securities.”
So there you have the new transparency. The SEC supports marking to market (honest accounting) but in comes FASB under pressure from Congress, and Ben Bernanke himself, to press for a more bank friendly, fraudulent system. If you are a bank, you may legally overstate the value of your assets. You may misrepresent your financial condition to your investors and your customers. And, you may continue to put our financial system at enormous risk.
Every time a bank fails, the taxpayer pays. The too big to fail banks are not only equally overvalued, but also currently hold an estimated $4 trillion dollars in unreported and unregulated liabilities call SIV’s. If they fail, will the Treasury bail them out? With a price tag that high, not likely.
If you think that the current administration has brought transparency to government, think again. More on this in the days to come.
And, if you still have your money in a too big to fail bank, you may just want to reconsider.
