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How bad are the Banks really?

By now we are all familiar with extend and pretend accounting.  Investors tend to think that things are probably a little bit worse than what is being reported but how do we know that things aren't a lot worse?  Normally they would just flat run out of money and there would be a liquidity crunch but they are sitting on a pile of fed money so that will never happen.  So they can't be illiquid (because of fed cash) and they can't be insolvent (because of phony accounting rules), so there is no possible way that anything bad can happen to them no matter how bad there balance sheet really is.  Sushi anyone?