Fraud In Our Financial System Has Not Gone Away

If you think Obama (or any Republican, or for that matter the Libertarian front-runner) is interested in getting rid of the fraud in our financial system, think again.

How stressful were the Fed’s tests? One anecdote stands apart: Regions Financial Corp. (RF), which still hasn’t paid back its bailout money from the Troubled Asset Relief Program, passed.

The footnotes to the company’s latest financial statements tell the story. There, the Birmingham, Alabama-based lender disclosed that the loans on its books were worth $8.1 billion less than what its balance sheet said, as of Dec. 31. By comparison, the company’s tangible common equity, a bare-bones measure of net worth, was $7.6 billion.

Got that?

The bank is insolvent using market-based accounting — that is, what something can actually be sold for.  Under “Prompt Corrective Action” (12 USC Sec 1831o) banks that have less than 2% of capital in tangible equity in respect to assets are considered critically undercapitalized.

Regions, when looking at market prices, has negative tangible common equity.  It is, under market accounting, bankrupt.

This is what the Kanjorski hearing rammed down FASB’s throat in early 2009.  It was an act of legal extortion committed by Congress eviscerating the very regulations put into place after the S&L crisis to prevent the government from being forced to assume losses and backstop frauds.

Those backstops are in fact nothing more than stealing from you, the taxpayer, in each and every single case.  The cost is transferred to you even when the alleged “backstop” is paid back!  Where do you think the money came from to “pay it back”?  It came from overdraft fees, interest charges of 30% when the bank is getting Fed money for 0.5% and various other schemes that amount to nothing more than forcing you to pay for these institutions’ bad behavior and (in many cases) actionable or even criminal misconduct. 

This is no different than forcing you as a victim of robbery to pay the restitution ordered against the crook that stuck you up and since it is the government doing this you’re literally being forced to pay for the offense(s) committed against you!

The only price that matters when it comes to your house, your car or anything else is what someone will pay you for it.  This premise plays out every single day in the stock market where an auction is held from 9:30 to 4:00 Eastern Time for shares of listed companies.  A similar auction is held for the bonds (debt of various firms and entities) along with commodities such as wheat, oil, orange juice and silver.

But when such debt instruments (functionally indistinguishable from a bond) are held by a bank that bank gets to literally make up the value of those instruments.  It can claim that they’re worth every penny they paid for them originally or even more (by including interest income that might be received) irrespective of what the market believes about the likelihood that the debt will be paid back in full.

This is simply a lie.  It was a lie in 2006 and that lie (calling things “AAA” when they were in fact nothing more than loans made to broke people who immediately blew the entire amount on hookers and blow — in some cases literally!) is what led to the financial train wreck.

The point, ladies and gentlemen, is that the lying is still going on and as a result another train wreck, if we don’t cut this crap out, is inevitable.

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