U.S. Banks Putting 'Lipstick on a Pig'

I have been extremely strident in my ridicule of bogus, bankster “bottom-lines" - and I'm certainly not alone.

In the legal system, when a party makes an admission which is against one's own interests, such admissions are given much greater weight than a self-serving statement made by the same party. Thus, when a Wall Street mouth-piece like Bloomberg heaps doubt onto the validity of Wall Street accounting, and the supposed “profits” they are now reporting, this is something which should be examined more closely than most of their drivel.

To quickly recount this propaganda campaign to make U.S. banks not only appear solvent, but “profitable”, here is the chronology. First, the so-called U.S. accounting “regulator” severely diluted U.S. accounting standards (see “FASB strong-armed into mark to fantasy accounting”) - just in time for the banksters to re-write their books before reporting Q1 results.

This was followed by Tim-the-tax-cheat's hilarious “stress test” sham (“U.S. bank stress tests a joke before they begin”). To summarize this farce, right after re-writing the banksters' books with mark-to-fantasy accounting to make them appear solvent now, Geithner then “tested” these banks (for future “health”) through incorporating a set of assumptions and parameters which represented a better-than-best-case scenario for the U.S. economy.

Here are the much more tactful words of Bloomberg:

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions appear healthier than they are.

This was followed by a long list of statements and quotes from analysts and commentators including economics Nobel Prize-winner, Joseph Stiglitz.

The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of this mess, says economist Joseph Stiglitz...The danger is that weak banks will remain reluctant to lend...

Citigroup's (C) $1.6 billion in first-quarter profits would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc., in Jupiter Florida. “The banks' profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They're all part of a major effort to put lipstick on a pig.”

Further deterioration of loans will eventually force banks to recognize losses that their bookkeeping lets them ignore for now, says David Sherman, an accounting professor at Northeastern University in Boston. Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago, says government stress scenarios underestimate how bad the economy may get.

Of course, that last remark is a clear understatement. Real unemployment is already far worse than the worst-case assumption of the “stress test”.

Similarly, with but one exception, all categories of U.S. loans are simultaneously at record delinquency rates (see “Loan delinquencies break records – bankster lies exposed”), this is also already worse than “stress test” assumptions. As for the one exception – commercial loans – the only reason this category is not yet at a record delinquency rate is because the collapse here started two years after the collapse of the housing “bubble”.

This is combined with hilarious attempts to hide the catastrophic job losses which continue in the U.S. economy (“U.S. jobs propaganda gets more and more desperate”). Meanwhile, a similar propaganda campaign is underway to (once again) pretend that the U.S. housing market is nearing a “bottom” (see “A Revealing Look at U.S. Housing Propaganda”, and “U.S. housing sector stability dependent on vultures”).

Conveniently, the pronouncement that the U.S. financial sector was not only “healthy”, but “profitable” came just before the FASB was forced to tighten the rules on so-called “off balance sheet assets” (“Accounting changes NOT factored into stress tests”). Specifically, the U.S. financial crime syndicate will be forced to move a small portion (roughly $1 trillion) of its “off-balance sheet” feces onto the individual bankster, balance sheets. I say “small portion” since Citigroup alone has over $1.5 TRILLION of off-balance sheet feces.

As a further indication of the totally illusory “health” of these fraud-factories, the FDIC recently announced that it couldn't find a buyer for Silverton Bank of Atlanta. This is...er, was a very large U.S. commercial bank which operated exclusively as a bank for banksters.

One would assume that with the U.S. financial sector supposedly recovering, and with the FDIC willing to strip away the bad “assets”, that buyers would have been lining up to take over this operation. Instead, only a single private equity group showed interest – but only on condition that the FDIC include billions in additional guarantees, for a company which only had about $4 billion in assets.

In other words, without fully indemnifying a future buyer from potential losses down the road, no one wanted to take over this bank (see “Death of Silverton Bank speaks volumes”).

Bloomberg then went on to ridicule the supposed “profits” from two of the U.S. fraud-factories: Wells Fargo (WFC) and Citigroup – in great detail. While bankster talking-heads have generally been jumping in front of microphones at every opportunity to brag about how “healthy” their companies are, strangely, Bloomberg couldn't find anyone from either Wells Fargo or Citigroup who was willing to comment on this analysis.

Even Bloomberg could see where this fraudulent campaign of lies and stalling was heading:

Indeed, while the government and accounting rule makers try to help the banks look their best [i.e. much better than they really are], they may make the U.S. economy worse. As long as lenders are stuck with bad loans, they can't provide new loans to consumers or corporations to fuel a potential recovery. The banks may look pretty, but they will be zombies until they clean up their books.

This brings us to the most recent Geithner scam: the Public Private Investment Program (see “The Geithner Scam: a step-by-step illustration”). In this massive, taxpayer rip-off, U.S. fraud factories will be allowed to “sell” assets back and forth to each other – with every sale accompanied by HUGE taxpayer hand-outs and total indemnification from future losses.

The problem with this scam (from the perspective of U.S. fraud-factories) is that it is woefully underfunded, since U.S. bankster oligarchs know that they would have great difficulty in obtaining additional hand-outs above and beyond the more than $10 TRILLION already spent or pledged in propping up these bankrupt banks.

As a result, some time in the next six months, one of two events will occur. Either the banksters will find a way to pry more trillions out of their servants in the U.S. government, or the entire sector will plunge far below previous lows – as years of lies and stalling back them into a corner.

These “pigs” are going down – no matter how much lipstick gets painted on them.

Comments

[Graham and ...:]

Dear Jeff:

You really hit the nail on the head with your lastest comment!

Jun 07 10:04 AM

[Tom Jacobs:]

Jeff,

I generally find your posts, this one included, credible and in the right direction, but I believe that the inflammatory language detracts from your analysis. There is nothing wrong with tact. You have strong arguments and the only perception I get from "crime syndicate" or "feces" is to question your judgment.

I have not observed Bloomberg to be a Wall Street mouthpiece at any point of the crisis. They took the lead on challenging the Fed's secrecy regarding its actions, not a step that a Wall Street mouthpiece would pursue when the Fed has repeatedly acted to protect Wall Street and the status quo.

Tom

Jun 07 11:14 AM

[Nettligent:]

Problems with commercial and residential real estate industry are huge with trillion dollars in loss. The worst has yet to come and more problems ahead. Foreclosure and loan deliquencies are up.
I need your unbiased opinions: Why Stocks are up and Wall Street is happy? It does not make much sense.

Jun 07 12:25 PM

[Barry Robbins:]

At this point, after a big run-up in financial stocks, I can't see why you would buy C or BAC. Is there still more upside ahead? Also, you didn't mention the huge "trading" gains most big banks made on the AIG govt-sponsored CDS payoffs. Obviously, now is a "sit on the sidelines" time for the stock investor. The only remaining decision is whether inflation or deflation will result. Weiss mentioned in the Bloomberg article sees deflation. Others like Schiff, see inflation. In the short term, I see inflation, so I am putting a lot in Gold and Silver (CEF and GTU).

Jun 07 01:30 PM

[Jeff Nielson:]

Hi Tom.

Fair comment about the inflammatory tone of my writing. I have gotten a LOT of feedback on this aspect of my work - with comments from BOTH "sides of the fence".

I've opted to continue with my "in your face" style of writing based simply on the success I've had in building an audience. This reinforces my own personal view: to stand up to and refute the propaganda-machine (which tends to drown-out "contrarians" like myself by about a margin of ten-to-one - if not more), I MUST be able to attract attention.

I remain unconvinced that I could be as successful with a more subdued style.

As for your defense of Bloomberg, I would suggest that you defer to my analysis here. I've spent well over two years closely monitoring Bloomberg - PURELY from the perspective of it being a propaganda mouth-piece.

While there are occasional commentaries essentially free from any brainwashing, the vast majority of what is produced on that site is propaganda - period.

I'll use this specific piece of nonsense for my example:
"Slower U.S. Job Losses Signal Recession Is Starting to Ease"

(www.bloomberg.com/apps...)


On Jun 07 11:14 AM Tom Jacobs wrote:

> Jeff,
>
> I generally find your posts, this one included, credible and in the
> right direction, but I believe that the inflammatory language detracts
> from your analysis...

Jun 07 01:56 PM

[Fitz919:]

Inflammatory terms ruined your insightful piece!

If you cleaned it up and stuck to the facts you'd be way ahead, and more people would read your entire article.

The Government, the Banks, and the Media continue to put lipstick on a dead pig...after it's funeral. (See, I can do inflammatory too. LOL)

To the Author, if you have a moment: Concerning Geithner's big Public/Private Partnership Plan. If the toxic assets can now be valued at any level the current owner desires, as long as they stay on their books. Why would anyone sell them? On paper, they are the geese laying golden eggs for their current owners. They are the reason so many big banks are claiming profits for the last few months. Are the banks going to sell them, and then just buy them back again with public money, is that what Geithner's really planning? I've figured his big plan was DOA from it's inception.

Love to hear the author's thoughts on this.

Jun 07 04:29 PM

[Jeff Nielson:]

Hi Fitz.

O.K., that's two "votes" to tone-down the rhetoric.

As for the PPIP, I precisely answered your question (in great detail) in the link I provided inside the commentary: "The Geithner Scam: a step-by-step illustration" www.bullionbullscanada...

To be brief, yes they can "value" the assets at any price they want (thanks to phony accounting rules) - but they're still nearly worthless (at least most of those "toxic" assets). With the PPIP, they will have the chance to SELL them - at something close to "face value" - with U.S. taxpayers taking 100% of the losses.


On Jun 07 04:29 PM Fitz919 wrote:

> Inflammatory terms ruined your insightful piece!
>
> If you cleaned it up and stuck to the facts you'd be way ahead, and
> more people would read your entire article.
>
> The Government, the Banks, and the Media continue to put lipstick
> on a dead pig...after it's funeral. (See, I can do inflammatory
> too. LOL)
>
> To the Author, if you have a moment: Concerning Geithner's big Public/Private
> Partnership Plan. If the toxic assets can now be valued at any level
> the current owner desires, as long as they stay on their books.
> Why would anyone sell them? On paper, they are the geese laying
> golden eggs for their current owners. They are the reason so many
> big banks are claiming profits for the last few months. Are the
> banks going to sell them, and then just buy them back again with
> public money, is that what Geithner's really planning? I've figured
> his big plan was DOA from it's inception.
>
> Love to hear the author's thoughts on this.

Jun 07 04:43 PM

[Tack:]

The reality, missed here, as in so many places, is that the entire financial sector was gamed by the shortsellers, led by Goldman Sachs, who created a thinly-trade ABX index that could be easily destroyed and coupled it with an insane mark-to-market accounting rules, which forced banks, and others, to mark assets at values that bore no resemblance to their actual underlying performance. The shortsellers knew they could destroy value easily in this scenario, and they were aided and abetted by the complete lack of supervision, which resulted in vast "naked" (unborrowed, nonexistent shares) short trades and on massive buying of unregulated credit-default swaps (CDS).

Subprime lending failures, and other bank lending losses, would have been easily manageable by banks, absent the artificial liquidity trap created by the above machinations. Goldman, even added a cherry on their shortselling cake, by having their alumnus, Secretary Paulson, "save" AIG, almost exclusively to the benefit of Goldman, which held massive quantities of CDS contracts, written by AIG, on the various issues they were shorting --many of which they even underwote during their issuance, if you want to consider that colossal breach of fiduciary duty.

Like most artificially-induced crazes, the bank holocaust finally ran out of steam when all the same folks who made billions going short decided that there were huge gains to be made betting the long side of surviving institutions and/or buying up ridiculously depressed mortgage (and other) paper for pennies on the dollar.

What was phony was the artificially-created valuation meltdown, to begin with, not the recovery of some semblance of sanity, and the rediscovery of value, now.

Jun 07 05:12 PM

[5142152-337:]

All right! My two cents worth. First, Jeff you DO NOT need me to defend you. That said, I personally find solace in your salty verbiage. I wore a three-piece suit for decades. The elevator was the WORST language insulator there was. Observance: The inhabitants were relieved, upbeat, and more confident with themselves after "losing it". And, the facts NEVER got in the way of the F-bombs...unlike those that don't even raise their voice, but think nothing of slipping some anthrax in your coffee..

I failed two subjects: diplomacy and patience, yet I was/am successfull. Tell the truth. Nothing else matters, even the language used to do so.

Jun 07 05:18 PM

[PainfullyAware:]

Jeff

Emotion and Passion is a "Is A Double Edged Sword". It invigorates some and makes others uncomfortable. "Dry" news is the "Safest" for those who are easily led by the bridle of emotion. Fact Is Fact; Even when "Colored" by charged language. The problem occurs in that stuff "Too Colored" is mistaken as less valid because the inept use the same tactic to assign an emotional response to false diatribe.

I Wish That People Had Better Ability To Discern Rational And Reasonable Arguments; No Mater Presented In "Plaid Or Pastel".

I Believe That Anger Is Merited At This Point In Time.

Be You, Because No One Else Can.


Another thing of note that is current events:

The Federal Reserve Hiring A Lobbyist To Combat HR1207
www.bloomberg.com/apps...

"June 5 (Bloomberg) -- The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said. "

The article states they are considering Linda Robertson of Enron Lobbying Fame. She begins in July - Watch for waning support to begin when it becomes "Lucrative" to our "Representatives".

Ron Paul Must Be Scaring The Bejeebus Out Of The Fed Folks - That His Bill Is Gaining Too Much Support.

Turn Off The Daytime Soap Opera - Better Drama In The Real World.

Jun 07 05:57 PM

[Poor Dude:]

I have to agree with Tack on this one. See my reasoning at

seekingalpha.com/artic...

Jun 07 10:08 PM

[Manifestor:]

It is not important that the battle (banks getting profitable) be won in the most honorable way as long as the 'win' even if it is by fudging numbers or otherwise, helps fight the bigger war- consumer/business confidence, economy and shareholder value, more effectively.

Jun 07 10:59 PM

[User 420268:]

Here's an article from main stream on real unemployment figure:
www.msnbc.msn.com/id/3.../ which should lay to rest your doubts about unemployment.


On Jun 07 06:01 AM pissedoffbanker wrote:

> Your comments would be more credible if you posted the actual parameters
> of the stress test which you deem to be bogus. Unemployment is now
> about 9.4% but the stress test worst-case scenario assumes 10.4%,
> so why are you lying and saying that unemployment is already worse
> than the stress-test parameters?

Jun 07 11:04 PM

[Jeff Nielson:]

Thanks for the comment, 420268.

Even the break-down on that link isn't comprehensive, as it overlooks at least one additional category of under-employment: people forced to work at jobs far below their skill/qualifications level.

Totally SEPARATE from this problem is the issue of rapidly falling wages.


On Jun 07 11:04 PM User 420268 wrote:

>
> Here's an article from main stream on real unemployment figure:<br/>www.msnbc.msn.com/id/3.../
> which should lay to rest your doubts about unemployment.

Jun 07 11:37 PM

[SeeTheLight:]

Good article. Closely follows what I believe which this is just an uptick in a downward spiral that has yet to reach bottom. What do people think that the recession can't ease slightly before resuming its downward trend?

Anyhow, I just thought I'd mention the fact that many of the major banks profits were generated from a number of very interesting facts. First they can borrow money from the government for basically nothing since the overnight rate is targeted at 0-0.25 pts (AKA 0) and then turn around and invest that in short term investments like treasuries and pocket the difference (even if the treasury prices drop because hey we don't have to realize the loss any more until we sell).

Second and more telling, a large chunk of these so called profits came from AIG unwinding its massive derivative portfolio (courtesy of Uncle Sam's bailout machine). Direct from the taxpayer to AIG to the banks. But those are one time gains, unsustainable.

Third, with Obama's moratorium on foreclosures and mark to fantasy asset valuation there is a huge back log on foreclosures which are now cranking up again (note there's your housing recovery, unfortunately the sales uptick is all on distressed sales and housing prices continued to fall unabated). Once these assets sell, they have to realize the loss, even in mark to fantasy accounting. And do you think any of these banks are going to hold off on selling to the suckers buying on the green shoots propaganda right now when they know the next downturn is around the corner and those foreclosures will be worth even less? Nope.

As is expected the world is not coming to an end, so it is not surprising that the rate of decline could not keep up with its torrid pace, but I would say that a long period of moderate declines is worse than a sharp drop, in fact it is worse because it prolongs the pain. It make take a while for reality to set in for all these people forecasting a V-shaped recovery, but if these people take off their rose colored glasses they would see that you are right, that Uncle Sam has been pretty liberal with its lipstick, and not just with the financial pig.

Good Luck all.

Jun 08 03:47 AM

[Angry Banker:]

It doesn't matter if the "real" unemployment rate is different than the official gov't figure as long as the same method of measurement is used in different periods. For example, if credit card loss rates are typically 8% when the "broad measure of unemployment" you cite is 10%, then if unemployment under the "broad measure" became 15%, then the credit card loss rates might be project at 12% (note that these correlations are illustrative only and do not actually relate to real unemployment vs. loss rate statistics). So unless they've dramatically changed HOW unemployment is measured, then the statistical correlations are still valid.

As for Q1's profits being the result of accounting tricks, I actually don't disagree with you. But to be fair, consider also that many of the losses (and thus capital ratio impairments) were the result of mark-to-illiquid-market accounting. In other words, many firms did not suffer a realized loss on a sale, but rather they were required to write down the value of the assets on their books as if they had actually suffered the loss. Thus, when the banks are allowed to reverse those losses by marking UP to market (when it finally exists), I don't think they should be overly damned for that accounting gain which is really just reversing a prior write-down.

Having said the above, certain other accounting adjustments I agree are non-sensical, but that doesn't mean the banks are guilty of fraud. Rather, they are following GAAP and as long as the adjustments are disclosed in the financial statements & earnings report (which they were), then it is up to the prudent investor to decipher what he/she believes to be valid sustainable revenues and those that are not.

Lastly, regarding your request for me to name one stress-test parameter which is realistic, I would say that they are ALL realistic. Considering the gov't did not create the assumptions themselves and instead polled professionals in the various fields to create the assumptions (including adverse scenarios), they can all be deemed to be credible. For your readers who are interested in reviewing the facts, rather than just blindly shouting "amen" to your rants, they can find all the details on Page 6 of the official SCAP document at federalreserve.gov/new...

Jun 08 06:45 AM

[Graham and ...:]

Dear Jeff:

I am of mixed feelings about your "strong" style.

I'll admit two things about it; one that I was initially attracted to it, two as a follower, I find it a bit tiring.

My conclusion is this: A strong style attracts followers, a milder tone keeps them better.

When you had 3 (or so) followers, a strong tone did a great job of getting you more. Now that you have (almost) 300, (including yours truly), the dynamics are a bit different.

I don't know whether you want to draw the line at 300 or 3,000, but at some point you might want to think about not turning off people and keeping the followers you have, rather than prospecting for more..

Jun 08 09:18 AM

[Jeff Nielson:]

Hi G&D.

I'll certainly note your suggestion, but will make two points. First, while it may not be apparent to recent readers, I have in fact SLIGHTLY dialed-back my level of rhetoric recently - at least in terms of my "anger level" (lol).

Second, I appreciate your warning about being the proverbial "flash in the pan". In this respect, I have not focused on changing my tone as much as increasing the "depth" in my commentaries.

Both here, and on the site which I run with my partner, we continue to be gratified by the steady surge in "traffic". Should we lose that momentum, I will be sure to consider some of the constructive feedback I've received here and elsewhere.


On Jun 08 09:18 AM Graham and Dodd Investor wrote:

> Dear Jeff:
>
> I am of mixed feelings about your "strong" style.
>
> I'll admit two things about it; one that I was initially attracted
> to it, two as a follower, I find it a bit tiring.
>
> My conclusion is this: A strong style attracts followers, a milder
> tone keeps them better.
>
> When you had 3 (or so) followers, a strong tone did a great job of
> getting you more. Now that you have (almost) 300, (including yours
> truly), the dynamics are a bit different.
>
> I don't know whether you want to draw the line at 300 or 3,000, but
> at some point you might want to think about not turning off people
> and keeping the followers you have, rather than prospecting for more..

Jun 08 01:16 PM

[Econpro:]

Hey Jeff,

As long as your topics/analysis/conclu... remain interesting and relevant, I doubt that you will be losing any followers based on your "strong style." In fact, imho, I find it refreshing that you are not pulling any punches and your "strong style" helps to emphasize your points that much more, so by all means...keep it up.

Jun 08 01:39 PM

[MeditateMed...:]

I wonder how DC factors in Hollywood 'lay-offs', since they are all freelancers. I hear biz is down 36-50%, but, most people I know haven't worked for 4 months, and June doesn't look good either.


On Jun 07 10:01 AM Jeff Nielson wrote:

> Pissedoff, first of all, as the article states, MANY people (not
> just I) consider the "stress test" parameters a joke. Second, you
> didn't read carefully, I said "real unemployment" has already passed
> the "stress test" parameter - not the fantasy-figure you quoted.
>
>
> A BROADER measurement of unemployment puts the rate over 15% - and
> that is STILL a conservative measure.
>
> Let me reverse your question: name ONE stress-test parameter which
> IS realistic!

Jun 09 12:46 AM