Friday, March 12, 2010

Above the law

It's a "gimmick" when banksters do it. It's criminal fraud whenever anyone else does:
Lehman Brothers Holdings Inc used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, but there was not extensive wrongdoing, a court-appointed examiner has found.

In a 2,200-page report made public on Thursday, examiner Anton Valukas, chairman of law firm Jenner & Block, reported the results of his more than year-long investigation into who could be blamed for the firm's collapse, which deepened the global financial crisis.

The examiner said that while some of Lehman's management's decisions "can be questioned in retrospect" and the firm's valuation procedures for its assets "may have been wanting," those responsible for the firm had used their business judgment and were largely not liable for the firm's collapse.
So, Lehman's management ran the company into insolvency, then committed weeks of fraud to hide that fact, but somehow they "were largely not liable" for the collapse of the company? How is that even remotely credible? Especially in light of how the FDIC has made it perfectly clear that most banks are fraudulently hiding their present insolvency by assigning hugely exaggerated values to their assets. Even by the FDIC's overly conservative measure of "estimated losses", it is obvious that there is a huge gap between reported assets and actual assets.

This can be computed by subtracting the average FDIC-seized bank's deposit liabilities from its reported assets, then adding the estimated losses. In 2009, this average asset gap was $505 million against reported assets of $1,229 million, or 41.1%. In 2010, the average asset gap is presently running $272 million against reported assets of $638 million, or 43.7%. This indicates that the smaller banks are every bit as insolvent as the bigger banks. As are the giant banks; Karl Denninger explained the probable extent of their balance sheet fraud a few days ago:
So let's be generous and assume that the "big banks" are over-valuing their assets by 25% - the lower end of the range of what the FDIC says is, through actual experience, what's going on, and add it all up.

Bank of America shows $2.25 trillion in assets.

Citibank shows $1.89 trillion in assets.

JP Morgan/Chase shows $2.04 trillion in assets.

And Wells Fargo shows $1.31 trillion in assets.

This totals $7.49 trillion smackers.

The FDIC's experience with seizing banks thus far suggests quite strongly that all four of these entities are lying about these valuations, and that were they to be seized the loss embedded in them (and for which you, the taxpayer would be responsible) is somewhere between $1.49 and $2.99 trillion dollars.
Based on the last two years of data, the actual gap between the assets and liabilities of the Big Four is actually more like $3.2 trillion, or roughly the size of Citibank and Wells Fargo put together. Despite their failure to act, the FDIC obviously knows about this. By way of evidence, here was the FDIC's response to one of the Market Ticker's readers who asked about the difference between bank-reported assets and FDIC-reported estimated losses: "That’s the value the bank had them on their books on their year-end financials, but the true value is much less. It is similar to someone in Las Vegas saying that their house is worth $300,000 because that’s what they paid for it three years ago, but the reality is, if they had to sell it in today’s market, they’d only get $250,000 for it. The FDIC has to sell assets in today’s market."



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