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Former Managing Director of Goldman Sachs: Accounting Fraud of the Too Big to Fails May Be Worse Than Enron
Nomi Prins - former managing director of Goldman Sachs
and head of the international analytics group at Bear Stearns in London
- is saying the same thing that financial bloggers have been saying:
The giant banks are manipulating their books to make themselves look
profitable.
In fact, Prins says that this might be worse than the fraud which occurred at Enron:
Enron
was the financial scandal that kicked off the decade: a giant energy
trading company that appeared to be doing brilliantly—until we finally
noticed that it wasn’t. It’s largely been forgotten given the wreckage
that followed, and that’s too bad: we may be repeating those mistakes,
on a far larger scale.
Specifically, as the largest Wall Street
banks return to profitability—in some cases, breaking records—they say
everything is rosy. They’re lining up to pay back their TARP money and
asking Washington to back off. But why are they doing so well?
Remember that Enron got away with their illegalities so long because
their financials were so complicated that not even the analysts paid to
monitor the Houston-based trading giant could cogently explain how they
were making so much money.
Surely someone with Prins' financial background can sort out the accounting of the TBTFs?
In fact, no:
After
two weeks sifting through over one thousand pages of SEC filings for
the largest banks, I have the same concerns. While Washington ponders
what to do, or not do, about reforming Wall Street, the nation’s
biggest banks, plumped up on government capital and risk-infused
trading profits, have been moving stuff around their balance sheets
like a multi-billion dollar musical chairs game.
I was trying to
answer the simple question that you'd think regulators should want to
know: how much of each bank’s revenue is derived from trading (taking
risk) vs. other businesses? And how can you compare it across the
industry—so you can contain all that systemic risk?
The giant banks have played so many games of massaging numbers (see this), hiding losses off the books (see this)
and - as Prins documents - failing to report core data and shuffling
things around so that it is impossible to tell what they are doing.
Indeed, financial writers (like Reggie Middleton, Mike Shedlock, Tyler Durden, Karl Denninger and others) who have dug deep and analyzed the underlying data say that the giant banks are totally insolvent. This wouldn't be the first time that the biggest banks went bust and then covered it up over a period of many years.
Prins offers a solution:
The
long-term solution is bringing back Glass-Steagall. Being big doesn’t
just risk bringing down a financial system—it means you can also more
easily hide things. Remember the lesson from the Enron saga: when
things look too good to be true, they usually are.
Yes, and break up the too big to fails.
»
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Why can't the government just kill the credit default swap market? As of 1/1/10, all CDS buyers stop paying premiums and all sellers stop collecting them. Those holding risky loans are on their own, period.
>Yes, and break up the too big to fails.
This should apply to the good ole USA too. Smaller countries in North America might be less apt to engage in resource wars throughout the world to reclaim our scarce natural resources that the almighty mistakenly placed under someone else’s land.
I don't like what you said, I cling to the story of the US, but I am afraid you are right-- Too big to fail is too big to succeed. We need to re-localize, and that includes national identities.
Would an American brand bank, based in a foreign country, count as a foreigner when buying treasuries? You know how the report breaks down who bought what into broad vague categories...
I cannot find the link (search engines increasingly front-loading searches with volumes of useless unrelated crap), but I know I read this year where the Fed changed the very definition of what specifically constitutes a foreign intermediary for the first time in its history in order to disguise the fact fewer and fewer long bond purchases were being executed by our legacy financiers (China/Japan) by reclassifying certain purchases to give the cover things were status quo. Reminds me of my entrepreneurial idea to launch a new website http://www.truthvault.com where one can safely archive information communicated on the internet for fear it may be subsequently removed/hidden, etc.
Thanks, we are on the same page!
They can't hide it that the primary dealers sell the treasuries back (Or they hide it that they do it even more) but by changing the definition of a foreign bank, they could keep these banks up and running, if they play ball.
THE TRUTH BEING HIDDEN IS NOT ONLY THAT THE FINANCIAL SYSTEM IS INSOLVENT, BUT THAT THE WHOLE THING IS ALREADY AN UP AND RUNNING SOCIALIST FASCISM, BEING DISGUISED AS CAPITALISM, BECAUSE, IDEOLOGICALLY, IF FOLKS FIGURED IT OUT, THEY WOULD REVOLT AND WANT THEIR FREEDOM.
Truthvault is a great idea. Hard to know what to put in the vault on the front end though.
We speak of a mild outcome to all this, a new normal, as we stuff the pig on the scale of fate. We are so far down the rabbit hole Alice, so arse over tit, that it is quite plausible that the power law being applied here is masquerading mild as wild as well as its' converse.
Wonder if Scottie Sullivan is helping
out from "home confinement"? (He gets
out in Aug '10). Wonder if Andrew
Fastow is helping out from the big
house. We got some battle hardened
talent for balance sheet hijinks that
should be taken advantage of.
simple question that struck me this morning.....If BofA is SO profitable quarter after quater, with billions in profits...2-3 a quarter...why in THE hell are they ripping off a new set of "friends, family and fools"???
Just shake your head and say yes.....
"The long-term solution is bringing back Glass-Steagall. Being big doesn’t just risk bringing down a financial system—it means you can also more easily hide things. Remember the lesson from the Enron saga: when things look too good to be true, they usually are."
I feel the need to inform few readers and merely remind most that the second repeal of Glass-Steagall in 1999 was orchestrated by Phil "you're all a nation of whiners" Gramm, who's wife Wendy Lee served on the board of directors at Enron.
Here is an excerpt of a Univeristy of California press release dating from Jan05:
"UC reaches $168-million settlement with Enron directors in securities fraud case"
-snip-
The defendants in the shareholders’ lawsuit include the financial institutions of J. P. Morgan Chase, Citigroup, Merrill Lynch, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Barclays Bank, Toronto-Dominion Bank and the Royal Bank of Scotland, all considered key players in a series of fraudulent transactions that ultimately cost Enron investors billions of dollars. Other defendants include various former officers of Enron, its accountants, Arthur Andersen, and two law firms.
-snip-
Always the same friggin names.....Morgan, Citi, RBS for crying out loud!
When are we going to hang bankers and burn downtown is what I want to know?
-
"The long-term solution is bringing back Glass-Steagall. Being big doesn’t just risk bringing down a financial system—it means you can also more easily hide things. Remember the lesson from the Enron saga: when things look too good to be true, they usually are."
I feel the need to inform few readers and merely remind most that the second repeal of Glass-Steagall in 1999 was orchestrated by Phil "you're all a nation of whiners" Gramm, who's wife Wendy Lee served on the board of directors at Enron.
Here is an excerpt of a Univeristy of California press release dating from Jan05:
"UC reaches $168-million settlement with Enron directors in securities fraud case"
-snip-
The defendants in the shareholders’ lawsuit include the financial institutions of J. P. Morgan Chase, Citigroup, Merrill Lynch, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Barclays Bank, Toronto-Dominion Bank and the Royal Bank of Scotland, all considered key players in a series of fraudulent transactions that ultimately cost Enron investors billions of dollars. Other defendants include various former officers of Enron, its accountants, Arthur Andersen, and two law firms.
-snip-
Always the same fucking names.....Morgan, Citi, RBS for crying out loud!
When are we going to hang bankers and burn downtown is what I want to know?
big banks are in the hole for trillions. there are 60 trillion in swaps alone in america. everytime there is a default on a cre property there is an insurance policy behind it. the whole banking system has collapsed in america, it is beyond insolvent. 95% of all the loans in america are being done by the us government. fannie, freddie, and fha. Banks cant lend from their own portfolio because they have no money. so b of a sell million more shares to payoff tarp, you kidding me!
IT ENDS WITH AMERICA DEFAULTING ON THE DOLLAR! THEN WE CAN START OVER.
there is more than one way to skin a squid
even if it's a blood sucking one at that...
http://www.youtube.com/watch?v=T9yvSmSGjNg
...
send Dae-su (Old Boy) to Wall St and make sure
he's got plenty of chopsticks
Re-establishing Glass-Steagall will help contain risk, but will not eliminate it. Making sure that big banks can stand or fail on their own through independent supervision must supplement it.
admin
http://invetrics.com
TIA, people. TIA...
News and information,brains, are managed and manageable, the debts may not.
Monday, November 30, 2009
HSBC Holdings Upgraded To Buy At Merrill Lync
Morgan Stanley Says UAE Cost Of Capital To Rise
http://www.foxbusiness.com/story/markets/industries/finance/morgan-stanl...
12/01/2009
European shares rose in early trading on Tuesday, as worries about fall out from Dubai's debt woes abated. Banks advanced, with HSBC Holdings up 1.6% in London, while BNP Paribas shares rose 1.8% in Paris after it also announced an increased synergy target …
Story|12/02/2009
An Abu Dhabi bank executive, who asked not to be named, said London-listed Standard Chartered, HSBC , Lloyds and Royal Bank of Scotland, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank were on the creditors …
Story|12/03/2009
debt, Royal Bank of Scotland Group Plc has the largest exposure with about $1 billion to $2 billion extended, followed by HSBC Holdings Plc. , Standard Chartered Plc. , and Lloyds Banking Group Plc. , the Financial Times reported Thursday, citing bankers …
Dubai world debt is hovering around 50/60 billion usd !!!!!!!!!!!!!!!!!!Who else carries the bag?
OK, banks are totally insolvent from a balance sheet perspective. But what about cash flow?
Wait.
Let me rephrase and state the obvious.
If they are truly insolvent how do they stay in business? Your basic accounting 101 question.
I know, I know, Bailout bucks. But even with Bailout bucks, loss leverage could quickly kill remaining capital. So what is really going on?
These guys need help beyond bailout bucks.
Enter the FED.
Allow the Banks to pump some worthless MBS crap through the GSEs, then we can give them enough cash to operate and save up for any anticipated leveraged losses. In exchange Mr. Bank, you have to promise to buy some Treasuries when we tell you to.
So in this scenario then, the banks are insolvent but run day-to-day operations from FED cash. I guess its somewhat hidden if you front through the GSEs. Perhaps the real proof is in the amounts needed to prop up these guys. Here is where the $1.45T MBS number makes a lot of sense to me.
Comments?
Mark Beck
100% correct, plain as the b***s on a Dog. The unperforming loans (which would kill any bank via cash flow deficiencies that cannot be hidden when the ATM runs out) have been sold for 100% par to the taxpayer, via the GSE laundry.
The real price, as you so rightly observe, being "buy treasuries or we turn off the tap". So the game is ramped up a rather big notch. Namely to the moment when/if the USA hits cash flow reality. That is the reason (in my and obviously lots of other people's view) that the gold price is rising and will continue to do so.
Would an American brand bank, based in a foreign country, count as a foreigner when buying treasuries? You know how the report breaks down who bought what into broad vague categories...
Yeah...
Is anyone surprised by this at all?
indeed breaking up the too big to fail banks should be a huge priority. but the accounting games are enabled by congress, fasb, regulators, and the executive....as such the charades will continue.
allowing financial failure is the best way to eliminate frauds and enrons...i know see enron as a planned experiment in accounting which has now been extended to the banks....they learned from enron and now are getting away with murder and terrorism.....
the american people are too stupid to understand the value of moral hazard which is completely and totally non-existent....
bring back Glass-Steagall? its too late. the damage has been done. it is so severe, it can never be fixed or repaired. she doesn't understand their accounting? heck lord greenspan didn't understand derivatives. what else is new? like enron? well yehhhhhhhhhhh!!!!!
Fatalize much?
But what's the whole point of it when no one calls them out on the lies?
WHEN does reality hit and the truth really exposed? Bank balance sheets are NEVER going to be exposed.
We agonize over it.... but ya can't trade it. You can't win at it... even if you know the truth-- so I ask, "What's the point????"
Anyone? Anyone??? Bueller??
The return of Glass-Steagall is not the solution to our problems. After all, we are supposed to believe in the power of the free market. And, make no mistake, this has not been a failure of free-market economics, these markets have never been free in the first place.
The solution is for shareholders to hire managers that have a highly vested stake in the company. As it is now, corporate executives see public companies as ATM machines; their wealth and well being has little to no correlation with the long term stability and success of the company.
Recall that when most Wall Street firms were operated as private partnerships, with partner's capital at risk, they remained smaller, took less risk and were able to weather many a storm.
If we believed in the free market, we wouldn't had FDIC deposit insurance backed by the US Treasury.
Glass Stegall was enacted at the same time to keep federally insured deposits from fueling speculative investments in intangible assets.
Raising the FDIC limit to $250k was a big mistake. Not only doesn't the FDIC have the reserves, it encouraged people to flee the stock market.
If the markets "have never been free in the first place", why should we pretend that regulatory intervention is a bad thing? It blows my mind how many people who claim to support free markets believe that they have never existed.
"water-board Paulson and Bernanke..."
Can you water board bald guys, bayou_plumber?
Won't the water just run off their Cue Ball?
Smart chicks are hot...As for Ms. Prins... Hot chicks who are smart are hot enough to cook Comrade de Chaos' books for him.
http://dealbook.blogs.nytimes.com/2009/12/02/new-york-fed-takes-stakes-in-2-aig-insurance-units/
did ZH cover this story? I saw it crawl like a worm across the HLN screen this am but I've been working too hard, maybe I missed it.
From that NY Times story:
And for canceling an additional $9 billion of debt, the New York Fed received a stake in the American Life Insurance Company, which is based in Delaware. That company does most of its business in Japan and Britain but also has operations in Latin America and the Middle East.
The Fed can cash out its stakes, held in a trust, when the two subsidiaries are sold, something A.I.G. has been trying to do for more than a year. Because offers have been low for the units, Mr. Benmosche has said that he would rather wait and sell them at a higher price later. The New York Fed is entitled to the first $25 billion of proceeds from any sale.
Life insurance operations in Britain? That rang a bell on a story I read elsewhere yesterday. According to this Bloomberg story, the value of one of AIG's insurance businesses there is rapidly headed to zero. I'd guess that's one of the businesses AIG isn't able to sell at what it thinks is an appropriate price, so the New York Fed is probably taking it as part of the collateral against the $9 billion in debt it is forgiving.
http://bloomberg.com/apps/news?pid=20601109&sid=amaj3P5pVCyQ&pos=13
Dec. 2 (Bloomberg) -- American International Group Inc. suffered an 87 percent quarterly sales decline at its European life business as U.K. clients abandoned the firm, draining value from operations the insurer is selling to repay a U.S. bailout.
AIG halted withdrawals on its Premier Access Bond investment offering in the U.K. last year, and the closure drove third-quarter European premiums and deposits to $256 million from $1.97 billion a year earlier. The investment, promoted to savers who wanted “easy access” to funds, was marketed by banks including Coutts & Co., which counts Queen Elizabeth II among its clients.
“It’s such a tainted brand I can’t imagine any reason why I’d put an AIG product in front of a client,” said Danny Cox, head of advice at Hargreaves Lansdown Plc, the U.K.’s biggest retail investment broker.
And the shell game goes on...
News Flash: Big banks are insolvent.
We need a smoking gun ....... for these financial terrorists. Perhaps if we water-board Paulson and Bernacke together we can get the truth from these colossal thieves.
My suspicion is China will not be bidding for the round of US bonds early next year that have to raise 900B to 1.2 T $. Instead they will buy Gold. Wouldn't that be a surprise to 'tax cheat timmie' and his happy gang.
How do you know they are not already buying basket loads of those gold and silver that IMF is selling? And with american funny printed by Heli Ben? They exchanged their real stuff for our printed money and bought gold etc, they are not so dumb. Denninger Al Gore and Krugman won't be happy knowing that.
Citi was bailed out secretly at the time in the early 90's.
Did they report that to investors? Wasn't that fraud back then?
And Chase Manhattan too
Glad to see this story getting around.
hm smells good, what are we cooking for dinner?
mostly books.
"Most, but not all, of the major banking crises were associated with sharp drops in the deposit-currency ratio; the most important exception is in 1931 in Italy, where the government was able to keep secret much of the banking system's problems until a government takeover was affected."
Benjamin Bernanke, Essays From the Great Depression
Pg. 89
Emphasis mine.
i worked at bear stearns and don't remember Nomi - but he (or she) seems to be stating the obvious here
FAZ, baby, FAZ.
Be very careful with Faz.
I've lost a fortune this year with it. One day back a few months ago , lost 50% in one day
Eventually, I'll make money but so far cost me a few millions. Even these days, look at the way it behaves
so CAVEAT EMPTOR to the square on this one
I think I'll wait until their next reverse split, thanks.
What I wonder is how can ANYONE in their right mind NOT know that the banks are lying and cheating and insolvent? Or is it that everyone knows the emperor has no clothes, but they are ALL betting that nobody else wil have the balls to act on it, so they assume the charade will go on forever, though in reality, not fooling anybody. I want to short the damn banks but I cant time when people will wake up
+1
Ever since Citibank told the world in March that it made "a profit", we have been walking this line of "if we repeat enough times that life is good, it is good." Everyone knows it's no more true than it was before that announcement, but the big lie requires that we follow it. The trouble is that it is a lie, and everyone knows it. The collapse is a matter of time, but how much time is the unknown variable.
Mr. Efficient Market will eventually trump the Fed.
Fraud, lies, and con games can only go on for so long.
Okay. Fine. Let's get going. Who will begin to require the banks to show complete transparency?
Ben? Timmy? Barrack? Larry? Barney?
Who'll be the first to get it going right now? I'm waiting.
Everyone on this ZH blog and many others have been highlighting the bank's voodoo accounting for many months. Now the lie over their true financial condition is so deeply entrenched and established, it will take a huge event to unmask the fraud. And not just some Dubai debt troubles........$ 60B of debt trouble doesn't even hit anyone's radar screen anymore.
This is what happens when the abnormal becomes normal..... over time and with proper periodic reinforcement of a lie told over and over.
Numbers manipulation is an international banking arrangement in a deflating real asset world. That makes all parties NORMAL in their complicity with the scheme. But like all immoral schemes, the lies keep compounding under their own weight and the truth eventually breaks free.
There will be EXPONENTIALLY more pain the longer it goes on.
I agree totally agent Smith.When it really comes apart, it will be banking system apocalypse.And you are so correct about the undue influence/coercion used on the governments as well.I think threatening to crash the system unless I get what I want is treason...but that's just me.
What's scary is that we already HAD banking system apocalypse. That's what last year was. Had we allowed that to complete, we would be in massive pain right now, but setting the floor for future growth. Instead, we have chosen to go to the next step: FULL system apocalypse. No longer is it the banking system we are talking about. We are now talking about the full faith and credit of the United States. That they would allow us to gamble THAT chip on the table personally scares me to death.