May 19, 2008 – 9:38 am

The Bull Sh!t keeps getting deeper as the bankers, CEOs and the government they own continue to bury us in it. Beyond the Kudlows , Jim “Bear Stearns is not insolvent” Cramers and Auther Andersonisk mystic accounting methods we now have off income statement balance sheet write downs and Basel II.

Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional write downs included in their balance sheets, regulatory filings show.

The banks are using sleight of hand accounting to avoid the loss which would otherwise be incurred. The delusion is simple but powerful. By leaving the bad debt on the balance sheet instead of the income statement until it recovers –and it will recover(told you it was powerful)– they avoid the booking the loss. Once the asset makes its inevitable recovery the bank will triumphantly sell it for a profit and book that instead.

Banks that are more willing to acknowledge their balance- sheet write downs, such as Amsterdam-based ING, say the valuations of assets will be reversed when markets recover.

OK great, what do I do with all the Yahoo I bought at $450 per share at the height of that other bubble? Yahoo closed last night at $27, that’s a difference of $423 per share. Now if I haven’t lost it how do I spend it?

While were waiting for the answer to that, let’s puke at Basel II.

The new bank-capital regime, known as Basel II, has gone into effect in some European countries and is being implemented in the U.S. and others starting this year. It allows financial institutions to use in-house risk models instead of just relying on external credit-worthiness ratings in calculating their risk- weighted capital requirements.

What, did he really say that? “It allows financial institutions to use in-house risk models instead of just relying on external credit-worthiness ratings,…” That just means they don’t need to do ANY risk modeling at all. WOW what an improvement, for the banks! Oh, but wait, there’s nothing to worry about.

Even if regulators are soft on banks and brokers when it comes to capital requirements, investors won’t be, according to Samuel Hayes, professor emeritus at Harvard Business School in Boston.

Oooo, emeritus, let hear what he has to say.

The collapse in March of New York-based Bear Stearns Cos., once the fifth-largest U.S. securities firm, shows that fulfilling regulatory capital requirements isn’t sufficient to survive, Hayes said. The SEC has said Bear Stearns was “well-capitalized” until the moment it faced bankruptcy as clients and creditors lost confidence and withdrew their money.

WT.? is he kidding? Not even funny, investors (some life long employees lost their life savings) got scorched in the Bear Stearns take down, burned to the last bloody red cent, and the only reason they got killed is because regulators said they were well capitalized when they were not. The purpose of regulation and regulators is to regulate the banks and protect investors from events exactly like the Bear Stearns murder. Imagine if you can that the SEC came out and said Bear Stearns was not well capitalized when in fact it first became “not well capitalized “(probably years ago). Let me just ask you, Mr. Emeritus, how many investors would not have lost it all on their Stearns position because they never would have taken it to begin with, if the SEC did its job? And let me ask you one thing more. Who’s side are you really on?

  1. 11 Responses to “Sleight of Hand”

  2. Get rid of the neo-cons. Markets need a minimun of regulation. The crooks in Congress allowed all this chaos. Your politicians really stink. I am not optimistic that things will change. Buy gold.

    Having the mafia from Goldman Sachs controlling the Democrats and the Republicans assures the rest of the world that nothing will change. The SEC is a joke. Buy silver. Buy oil and the hell with US financial markets !

    By Marc Authier on May 19, 2008

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