Correct me if I am just way off base here but does not the cloud of mystery surrounding the results of the Obama Administration’s bank stress test sound eerily familiar to the Bernie Madoff ponzi scheme? Let me explain.
The reason Bernie Madoff got away with his fraud for so long was his lack of transparency. Madoff’s investments and how he was able to produce consistently high returns month after month were never fully disclosed to individual investors and various funds until it was too late. Many banks, however, escaped Madoff related losses. A JPMorgan (NYSE:JPM) spokeswoman said the bank “became concerned about the lack of transparency to some questions we posed as part of our review.” (SEE) but individual investors were apparently left in the dark.
Now fast forward to today’s Reuters headline U.S. Planning to Reveal Data on Health of Top Banks: Report.
And here is the text in its entirety (italics mine for emphasis):
The Obama administration is drawing up plans to disclose the financial condition of the 19 biggest banks in the country, the New York Times said, citing senior administration officials. The administration has decided to reveal some sensitive details of the “stress tests” now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest, the paper said. The stress tests, announced in February, were designed to see if banks are adequately capitalized. Banks that are found to need more money would then have six months to raise it, or take funds directly from the government in a new round of capital injections. But government officials have been less than clear about how the details of the test results will be released. The Treasury Department and the Federal Reserve have asked banks not to discuss the exams publicly out of concern that information will trickle out inconsistently and create market chaos, a source familiar with the talks between the government and the banks told Reuters. While all of the banks are expected to pass the tests, some are expected to be graded more highly than others, according to the paper. Officials have deliberately left murky just how much they intend to reveal - or will encourage the banks to reveal - about how well the banks would weather difficult economic conditions over the next two years, according to the paper. Indicating which banks are most vulnerable still runs some risk of doing what officials hope to avoid, the paper said. “The assessments are not yet complete,” the paper cited Stephanie Cutter, a spokeswoman for the Treasury, as saying. “When they are, we’ll work with the banks on how best to release the appropriate data and on what time-frame to ensure fairness and minimize market uncertainty.”
Did not the Madoff scheme reveal how investors can be duped when investments are more “secret” than transparent? Did not Madoff “reveal” to his clients only what he wanted to when he wanted to?
Before, banks chose not to “publicly discuss” their misgivings about Madoff and his investment returns. Now our government is “working with the banks on how best to release appropriate data and on what time frame.”
It seems to me that our government has learned a few tricks from Mr. Madoff and the banks are more than happy to go along with it. Just a thought.
TRADING IS WAR. PREPARE YOUR WEAPONS.