Sex, Lies and Banking Stocks

08-26-2011 • TheAutomaticEarth.blogspot.com

Remember free markets, how they are supposed to be efficient and rational and all, based on full information for all participants? Well, all of these things, FASB 157, IFRS9, and any and all short-selling bans, they serve one purpose and one only: to obscure the facts from the public, so they can never make any decisions based on full disclosure. Financial institutions are not only permitted to withhold information from their shareholders, they're actively assisted -and one might add encouraged- in doing so. And that's not going to change. The bordering-on-criminal-negligence deal on mortgage fraud the US government is preparing for its banks is only the last example we need to bring that home. Just another detail that confirms the overall pattern. The big flipside of it all, as I said before, is that you can't fake it forever. And once you realize that you will never get full information on the value of bank assets, you're going to sell their stocks and never go back. Unless, and here we are in our Wile E. Coyote moment, you're the sort of investor that bets on governments forking over ever more taxpayer funds in order to make you hold on to those stocks. We can all try and determine what Bank of America's financial situation is really like, and Henry Blodget does a reasonable job of it in The Truth About Bank of America. The point is, though, that it's all just a guessing game for even the most in the know experts, since the government has freed all banks from their legal commitments concerning both fair value and the truthful disclosure of information related to it. Yes, it may be somewhat interesting to know whether Bank of America has $50 billion or $200 billion in undisclosed liabilities. But the political system has guaranteed that you'll never find out the real number. Until, perhaps, the bank goes poof. Which means that's it's not about Bank of America. It may be the worst of the bad apples, but so what? The entire basket full of them is rotten to the core. It's about political systems that break their own laws in order to facilitate the continued provision of misinformation concerning publicly traded institutions.

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