Friday, April 9, 2010

You Can Bank on the Lies

I just reread my post from yesterday and want to point out that I am not a financial professional in any way. To be totally honest, I don't really understand a good portion of the mumbo-jumbo uttered by the masters of deception in the financial industry. What I do know, however, is when someone is lying. And these guys have been lying at levels that would make Nixon blush.

This morning, the Wall Street Journal reports that the biggest banks - Goldman, JP Morgan, Bank of America, Morgan Stanley, et al - have been manipulating their balance sheets to make their financial condition look better than it really is. To be specific, they are moving debt around at the end of the quarter for reporting purposes and then putting it back after the reports are published.

In other words, they are cooking the books to make investors and regulators happy.

Sound familiar? It should. Just a few weeks ago a report was issued pointing out that this is exactly the behavior that sunk Lehman Bros. The Lehman report even let us know that the liars at the top of Lehman had a named procedure for this - "Repo 105."

Well, it seems Mr. Fuld at Lehman was not alone in this sham of a scam of a lie. In fact, based on the Journal's report, it is a common practice. Even everyone's fair haired boy Jamie Dimon at JP Morgan uses this tactic to enhance the numbers. Considering that Dimon may be history's largest recipient of government largesse in the form of Bear Stearns and Washington Mutual with tax dollars guaranteed to back up any losses, this is particularly wrong.

Not illegal, mind you. Barely legal, yes. Unethical, yes. Wrong, yes. But legal. Apparently, the bankers and Wall Street kids have twisted the laws to the point where cooking the books is now legal. And folks wonder why the banks are spending millions on an ad campaign against any kind of new regulation.

Before I go on, let me simply say that I am not in favor of a new agency or extensive new regulation. I believe that we have a ton of regulations already. What we don't have is willful enforcement. What we have are lazy regulators, a complacent government, a corrupt congress and a blind Federal Reserve. We need to close some loopholes in the regulations, but that is all. No new agency, and not a total revamp of the regulatory morass.

Congress can stop with the bogus show hearings and get to work today on establishing a serious investigation. Not more hearings where the Fools on the Hill recite prepared 3 minute questions leaving no time for an answer. Not more of the "J'accuse" style hearings so popular. What we need and still don't have is a forensic style investigation. One run by folks not seeking reelection and not looking for a big job on Wall Street. All Congress cares about is the next election. The only way Congress could be more out of touch would be if they were literally blindfolded.

In a previous post, I suggested that Dr. Elizabeth Warren and Fox Business' Eric Bolling (also a lifelong investor by trade) head up the investigation. Why those two? Well, they are pretty much the only 2 voices that are honest about this stuff. Warren already heads a commission to oversee TARP. She has never once hesitated to call it the way she sees it. Bolling is literally the only financial reporter to be honest about the way his friends deceived a nation. In other words, honest folks that have no secondary agenda. It is not a matter of conservative or liberal, Democrat or Republican. It is a matter of honesty.

Back to the machinations of the financial industry. One has to ask why this behavior is not being more strongly investigated. Why it took this long to surface. Well, it is simple. The so-called regulators at the Federal Reserve saw it happen, but decided it belonged to the Securities and Exchange Commission. The SEC felt it was a Fed issue. Truth? Both are so deeply intertwined with the entities they are supposed to regulate, they cannot see the violations for the cocktails. Or, as I like to put it, both the regulators and the regulated all belong to the same club.

So when the seemingly heroic Dimon makes his case against regulatory reform, what he is really saying is that he does not want to lose his ability to manipulate the numbers his shareholders see. He does not want to admit that his seemingly solid company is no more solid than Lehman was. Same for Blankfein at Goldman. He keeps sending out letters and press releases talking about fixing things and being more "transparent" but he is not. While proclaiming transparency he is cooking his books, too.

As we approach the April 15 tax deadline, American taxpayers are reporting honestly their income and expenses. Why? Because the IRS - the principle regulator for personal finance - can and will find any cheating. As they should. Like it or not (and nobody does) that is the law right now.

But, for some reason, the large banks and Wall Street firms do not feel this obligation. Why? Because their principle regulators are not so interested in regulating or honest reporting. Why? Because Fed Chairman Bernanke and Treasury Secretary Geithner have been in on this little game all along. They knew about it back at the beginning. And if they suddenly take action, then they will have to recuse themselves at best - if not resign in disgrace - because they helped game the system for their pals.

This is not a partisan issue. Geithner was president of the New York Fed when the big banks were cheating and gaming the system. It was his job to regulate them. Yet Lehman, Bear and the rest were allowed to run wild. Paulson - the ever present architect of this lie - was Treasury Secretary. He was point man on the scam of a generation. And Bernanke? Well, either he is a total fool or simply a very dishonest man. Either way, he is not doing his job as regulator. In fact he constantly seeks to protect these banks by hiding their transactions and interest free borrowing.

All of them promised transparency. And all of them immediately sought to thwart that. Here we sit, 2 years later, and we know nothing more of what really went on. No criminal investigations. Not even the blatant stuff like Fuld and Schwartz lying to shareholders about their companies. Not even Ken Lewis, who actually admitted to lying and concealing the real costs of the Merrill deal.

Where is the administration on this? Well, they want all new regulations and agencies. Without even a clue as to what is needed. They seem to think that somehow creating a new agency will be a magic wand and simply stop the bad practices by its very existence. They are wrong. The people Obama has hired to look at this are all part of the same crowd that got us here. We don't need a new agency.

We need the existing ones to do their existing jobs. And that is exactly what the administration won't do. Point out the failure of government. Thus we still have Geithner, Bernanke, Schapiro, Rubin and the rest of the usual suspects. Why Obama appointed them is beyond me. They already had failed. So, in traditional government methodology, they got promoted rather than fired. Obama routinely points to the "previous administration." Memo to the president - you hired most of that "previous administration's" financial/economic team. It is now the current administration and still ineffective, incompetent and likely corrupt.

So again, I have to call for that independent investigation. If I am right about Bolling and Warren, they will proceed independently anyway. They do care about the truth and do care about transparency. They care about getting the truth and creating an environment where I can safely invest and not worry that some Jamie Dimon type is really just scheming to take my money.

Until there is an open investigation outside the Congress and administration, we should wait. One of the biggest failures of government over the decades has been the tendency to leap before they look. To do something - anything - so they look good. Well, right now, government doesn't look any too good. Nor do the banks.

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