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Relying Upon The European Numbers

Tyler Durden's picture




 

Via Mark J. Grant, author of Out of the Box,

The Numbers
 
 
 
Our business revolves around the understanding of numbers and decisions based upon them. There is gaff, hype and fluff in great abundance, no doubt, but in the end the numbers generally tell a more accurate story. Most of us have been schooled to perform various analysis on the data presented and to draw conclusions from them but if the figures are inaccurate then, as the computer Geeks say, it is “garbage in and garbage out.”
 
 
 
Recently I have uncovered the fact that Spain, since 2000, has engaged in “dynamic provisioning.” This is well documented in a World Bank Report by Jesus Saurina who was the Director of the Financial Stability Department of the Bank of Spain. His paper is an academic one and makes the argument for the use of this process which is actually an admission that the books of the Spanish banks, and I would guess also the sovereign nation of Spain, have been manipulated on the basis of procyclicality. It is an interesting argument that he makes but my take is that it is little more than an academic justification for providing inaccurate data when it suits the bank or the country.
 
 
 
You may recall the two European bank stress tests. The first one was faulty as the data was manipulated and the second one was faulty because the methodology was manipulated. You may also remember that the Spanish banks were stated to be in good health, that Dexia was declared one of the safest banks in Europe and that the banks of Greece passed the tests with flying colors. The passage of time and the oft dreaded face of reality has proven my accusations of the time correct and it is pretty tough to argue with the actual results.
 
 
 
I have examined, in some detail, the actual debt of a number of European countries where only the use of simple addition and then division was employed. All that I did was count what Europe did not wish to count which were the actual liabilities, including the contingent ones, of the various nations. My work was exactly what is applied to any corporation in America which included derivative contracts, guarantees of other entities and so forth. My methodology was simple and applied the standard accounting practices of the United States to the sovereign nations of Europe. Material deviations in these practices in America would result in charges of Fraud while they are the accepted norm in Europe for the sovereign countries.
 
 
 
The resident institutions in the world where one thinks that accurate data may be found for Europe are Eurostat and the Bank for International Settlements. I have gone to the websites often to uncover data or to ferret out liabilities of various sorts. I have always accepted the numbers provided by these two institutions at face value but I am beginning to think this was a mistake. Spain and her official admission of “dynamic provisioning” has raised all kinds of questions in my mind and has unsettled my belief in the data provided by Europe to such an extent that I have been forced to totally re-examine the numbers that these two institutions have provided.
 
 
 
It is now quite apparent that the numbers for all of the Spanish banks, all of them, are inaccurate if American standards are applied. I also wonder aloud if the same is not true for the Italian Banks, the French banks as the experience of audits by the IMF has taught us that the figures for the Greek banks, the Portuguese banks and the Irish banks were not exactly Kosher. I find myself further forced to ponder whether the numbers for Spain, Italy and France also have been left to the imagination as Spain is trying every known strategy to avoid the Troika from coming in and examining the books. It may well be that the EU or the ECB could bury what may be found but it would be awfully tough for the IMF to hide any material breaches. Even when considering the IMF however, certain questions are raised. Their projections for Europe and each and every country in Europe have been wrong, dead wrong and far too optimistic. There is such a strong pattern here than I wonder if it is the methodology employed by the IMF or that the data provided by the European nations has been more fantasy than reality. Either option would provide a reason why the projections have been so incorrect and it may not be just one option or the other; but both.
 
 
 
I fear that the data given to us by Europe is erroneous. I know that in the case of the liabilities for the sovereign nations that it is wrong on the basis of the methodology employed. I know that the debt to GDP ratios are inaccurate because of what is not counted. I further know that contingent liabilities often become real liabilities as proven time and time again, that guarantees of bank debt, as in the case of Bankia in Spain or Dexia in Belgium, can become liabilities of the country if the bank falls by the wayside, that regional debt in many European countries is the responsibility of the sovereign, that nationally guaranteed derivative contracts, as in the case of Italy with $211 billion of such contracts, can get called upon as in the recent payment to Morgan Stanley. On a macro basis for Europe I am now forced to stop and wonder just what I am looking at and then realize that many of the financial calculations made and stamped with official by some country or the Press are exactly as stated by the Geeks; “Garbage in and Garbage out.”
 
 
 

A careful reading of the methodology utilized at Eurostat and the Bank for International Settlements reveals what I suspected; they accept the data from each country in Europe prima facie; nothing is checked or audited. Whatever is presented is accepted as fact. Consequently if a country, any country, has engaged in fairy tale arithmetic to protect their own national interests the financial calculations for any given nation and for Europe as a whole are inaccurate and no reliance can or should be made based upon their figures. We know, for certain, that Spain purposefully engages in fantasy accounting and so we know that we cannot rely upon their figures. This then would explain why Europe is in such trouble because if the data is not truthful then the truth, as most often happens, leaks out from underneath that which is hidden and provides the outcomes that the Europeans have tried so hard to avoid. I have wondered, many have wondered, why the crisis in Europe is so severe and I believe that I have found the answer; we have been staring at numbers that are not real and, whatever the real numbers are, they are providing the consequences that result from their actuality.

 

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Fri, 08/31/2012 - 08:59 | 2752109 LongSoupLine
LongSoupLine's picture

but, but Von Rump Roast said...

Fri, 08/31/2012 - 09:19 | 2752154 Abraxas
Abraxas's picture

"I feel that data from Europe is erroneous"

Why can't they be honest, just like the US government... or Chinese... or Russian...

Fri, 08/31/2012 - 09:20 | 2752187 Slack Jack
Slack Jack's picture

"Why can't they be honest, just like the US government... or Chinese... or Russian..."

They are honest enough to tell you this:

BREAKING NEWS:

BREAKING NEWS:

China and Germany will no longer do business in USD, Euros and Yuan preferred;

http://www.cnbc.com/id/48838061

Should I be buying EUR/USD ???????

Should I be buying Yuan ???????

So,... How come the Tylers haven't picked up on this?

Come on Tylers, why ain't you helping us out.

I don't understand why the Tylers are ignoring this development.

It just doesn't make sense.

Fri, 08/31/2012 - 09:21 | 2752193 Manthong
Manthong's picture

We can clear this up right away..

What’s the Mailbox Store box number of their auditor?

Fri, 08/31/2012 - 09:25 | 2752208 shokdee
shokdee's picture

I give up, you tell me.

Fri, 08/31/2012 - 09:24 | 2752201 shokdee
shokdee's picture

Correction: It just doesn't make sense, to me Slack Jack

Fri, 08/31/2012 - 09:27 | 2752218 Slack Jack
Slack Jack's picture

If it makes sense to you, then explain it to me. Thanks.

Fri, 08/31/2012 - 09:26 | 2752211 Slack Jack
Slack Jack's picture

Something funny happening here..........

Fri, 08/31/2012 - 09:19 | 2752156 shokdee
shokdee's picture

Von Rump Roast said .... "Sparn? Das ist "survival food" jah?"

Don't read the lies or between the lines,
 when you could be listening 4 free.

http://soundcloud.com/enjoytheride-1

....<+dowload and share ---

Fri, 08/31/2012 - 09:38 | 2752251 TWSceptic
TWSceptic's picture

He is a spineless weasel who would do anything to keep the status quo or perpetuate a bad system, here in Belgium we have already experienced what that old reptile is capable of. Do not trust it.

Fri, 08/31/2012 - 09:00 | 2752112 fonzannoon
fonzannoon's picture

$15 facefart coming? I say YES WE CAN!

Fri, 08/31/2012 - 09:00 | 2752113 oogs66
oogs66's picture

It must hurt him not to add in all the quotations, but much easier to read.

Only thing I disagree with is his conviction that U.S. numbers are so much better.

Fri, 08/31/2012 - 09:01 | 2752117 q99x2
q99x2's picture

Move those HFT machines closer to the indexes and you won't have to worry about the "numbers." US indexes don't have that problem any more.

Fri, 08/31/2012 - 09:04 | 2752126 q99x2
q99x2's picture

Location: in the Philippine Islands region
Preliminary Magnitude: 7.9(Mwp)
Depth: 33 (kilometers)
Lat: 10.9 ° N / Lon: 127.1 ° E
Origin Time: Fri 31 Aug 2012 12:47:38 PM (UTC)
Bulletin 1 2012-08-31 12:57:05.0 (Fri

Fri, 08/31/2012 - 09:22 | 2752191 shokdee
shokdee's picture

$15 facefart coming?

Location: in the Philippine Islands region
Preliminary Magnitude: 7.9(Mwp)
Depth: 33 (kilometers)
Lat: 10.9 ° N / Lon: 127.1 ° E
Origin Time: Fri 31 Aug 2012 12:47:38 PM (UTC)
Bulletin 1 2012-08-31 12:57:05.0 (Fried eggs and toast)

 

Fri, 08/31/2012 - 09:04 | 2752128 madcows
madcows's picture

Right, sorta like our own government understating inflation and unemployment, and then making decisions like QEn based on those bogus numbers.

What could possibly go wrong?

Fri, 08/31/2012 - 09:39 | 2752255 StychoKiller
StychoKiller's picture

"You can ignore reality, but you cannot ignore the consequences of ignoring reality."

Fri, 08/31/2012 - 09:07 | 2752137 Vincent Vega
Vincent Vega's picture

The data on the Mig is inaccurate.   ~Maverick

Fri, 08/31/2012 - 09:55 | 2752326 intric8
intric8's picture

If Spain is doing it, the other EU countries will follow suit. The current state of the banks is much like recent politics - once one side does something dirty, the other will rush to do the same in an effort to equalize. It's a total degradation enabled by total degererates who are willing to push the system to the limit. Spain is cooking books like they are using a kitchen-based meth lab.

Mon, 09/03/2012 - 07:51 | 2757325 jonytk
jonytk's picture

Spain is not cooking the books.
I work for the spanish goverment.
And i know that the problem here is that we have more levels of goverment than the US.
When they cut the autonomus goverment of the regions all debt problems will be solved.

Fri, 08/31/2012 - 09:10 | 2752151 dAnconia
dAnconia's picture

Fri, 08/31/2012 - 09:35 | 2752242 shokdee
shokdee's picture

o

O

Fri, 08/31/2012 - 09:10 | 2752152 timbo_em
timbo_em's picture

So banks cheat and goverments and government agencies cheat, too? I'm shocked!

btw: What is meant by "if American standards are applied"? Didn't the latest stress test in the US produce green lights left and right? Wait and see what happens to Morgan Stanley, the Economic Republic of JP Morgan et al when the SHTF in Europe.

Fri, 08/31/2012 - 09:16 | 2752170 shokdee
shokdee's picture

!!!! I'm shocked!  !!!!

Git yo yoyo outta de plug rude boy.

Fri, 08/31/2012 - 09:12 | 2752155 frenchie
frenchie's picture

but Kosher is bad...

btw, how US stands when applying your methodology ?

Fri, 08/31/2012 - 09:30 | 2752222 shokdee
shokdee's picture

Most kosher hamburger stands use the Just-In-Time methodology.

Fri, 08/31/2012 - 09:14 | 2752161 cxp
cxp's picture

The Trade copier launched for c3x signals. Now you can trade Bernanke speech. Who cares what he says. Lets make some money of his speech

http://capital3x.com/trade-copier/

Fri, 08/31/2012 - 09:25 | 2752206 Cognitive Dissonance
Cognitive Dissonance's picture

Might as well put it all on red.

Fri, 08/31/2012 - 09:31 | 2752225 shokdee
shokdee's picture

And voila, it's all Greek to me.

Fri, 08/31/2012 - 09:16 | 2752171 Schmuck Raker
Schmuck Raker's picture

Side note:

Is the world, as a whole, still exporting $300 billion more than it imports?

Fri, 08/31/2012 - 09:32 | 2752232 shokdee
shokdee's picture

Slide rule:

Does anyone use them anymore?

Fri, 08/31/2012 - 09:40 | 2752256 GeezerGeek
GeezerGeek's picture

Mine worked fine until I moved to Florida. The humidity made the wood swell up until 1 x 1 = 1.0001. At that point I went back to paper and pencil.

Fri, 08/31/2012 - 09:38 | 2752249 GeezerGeek
GeezerGeek's picture

Well, we did send Curiosity to Mars, and if you include the costs for the prior Mars missions...

Fri, 08/31/2012 - 09:19 | 2752178 smiler03
smiler03's picture

 "Material deviations in these practices in America would result in charges of Fraud "

 

Ha ha ha

Fri, 08/31/2012 - 09:21 | 2752192 SheepDog-One
SheepDog-One's picture

Right! Also someone here cant just rip off about $1.5 billion dollars out of trading funds to hand to a bankster overlord...they'd be immediately arrested!!

Im sorry Mark Grant this shows youre a huge *fail*

Fri, 08/31/2012 - 09:19 | 2752183 SheepDog-One
SheepDog-One's picture

Europe data erroneous? Well I'm sure glad that US gubment data is TOTALY honest and reliable! WHEW!

Fri, 08/31/2012 - 09:19 | 2752186 SwingForce
SwingForce's picture

Suffice it to say then, there is just not enuf paper to print a bailout on......

Fri, 08/31/2012 - 09:33 | 2752234 shokdee
shokdee's picture

suffice it is

Fri, 08/31/2012 - 09:23 | 2752190 Cognitive Dissonance
Cognitive Dissonance's picture

"I have wondered, many have wondered, why the crisis in Europe is so severe and I believe that I have found the answer; we have been staring at numbers that are not real and, whatever the real numbers are, they are providing the consequences that result from their actuality."

And so the personal awakening begins. Each of us must get to this point on our own using our own process of discovery. Only then will we truly believe our eyes and inner senses.

It hurts deeply and personally to finally realize that you were lied to and that you were partially, or wholly, to blame for accepting the lies. We "believe" what we want to believe. The art of manipulation is telling you what to believe and then giving it to you.

Give up your need to "believe" in order to function and you give up their ability to control you.

Fri, 08/31/2012 - 09:23 | 2752196 Nachdenken
Nachdenken's picture

The data is not wrong, it is not standardised. 

Micro-economic data from firms, personal income datá, are all calculated and consolidated according to different rules in the EU, so that macro-economic aggregates are false.

Which brings one back to the European fallacy - it is a union of diverse disharmony, trying to level out disparate cultures at great social and financial costs.

There is a group that profits from this - the bureaucrats in Brussels, unelected decision makers who will knead the Europeans into a soft willing mass of taxpaying serfs.

Fri, 08/31/2012 - 09:23 | 2752199 SheepDog-One
SheepDog-One's picture

Mark Grant claims to be 'out of the box', and is just NOW getting a hint that data is being fudged? Sure, he's only thinking it about Europe so far and not the stalwart of honesty and justice USA....guess that will happen in about 5 more years or so. Good luck Mark, we're all counting on you.

Fri, 08/31/2012 - 09:24 | 2752203 williambanzai7
williambanzai7's picture

Dynamic provisioning, that's out of the same book as debt reprofiling

Fri, 08/31/2012 - 11:59 | 2752945 goldfish1
goldfish1's picture

The tsunami warning was initially issued for the Philippines, Japan, Indonesia, Taiwan, Papua New Guinea and other islands in the Pacific including the U.S. state of Hawaii. cancelled

Fri, 08/31/2012 - 09:26 | 2752212 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

There you go. Asmussen, as member of the Executive Board of the ECB, as well as friend of Buba's Weidmann, has recently stated that the IMF must be involved in framing conditionality on any requests for the ECB to buy sovereign bonds. Rajoy has not asked for help officially, since Spain does not want anyone going through its books.

Are the books "paella"ed ?

Spain endured a fascist regime and civil war in the not too distant past, so people have a short term historical memory of suffering. It looks like this will come in handy.

Fri, 08/31/2012 - 09:27 | 2752214 phat ho
phat ho's picture

euro solution; throw each country's debt books at the wall.... whichever one sticks that's the one that gets bailed out. Oh wait, my gf did that one time on something else...hmmm

Fri, 08/31/2012 - 09:30 | 2752217 ebworthen
ebworthen's picture

If the accounting is not correct, if the numbers don't match, can't they just keep pretending?

I know us proles don't get to do it - but what is to stop them from saying the money is there when it isn't?

What is to stop them from simply filling in what holes they admit to with a couple of keystrokes?

Is the debt there simply to create debt to then impose "austerity" on citizens?

If money can be created for bankers out of thin air, why should I work?

Pay taxes?

Fri, 08/31/2012 - 09:31 | 2752224 theorist
theorist's picture

Is this really surprising? I would further add that the accounting policies mandated by Eurostat are themselves flawed. They are as different from corporate financial accounting practices (US under US GAAP and European under IFRS) as one could poeesible get. The difference to corporate accounting is excused by the of repeated quote that the Public Sector is different to a corporation. - Bad excuse. As an example, a corporation accounting for derivatives in either the US or in Europe in cosolidated accounts needs to account fro the derivative mark to amrket as a balance sheet item - asset or liability based on whether the derivative is making them money or losing it. Under Eurostat accounting - government accounts the derivative liability never shows up. Thus if Italy were to sell a bank a big option and was to receive upfront cash for it, this would be accounted for as cash in  but no liability against it. The liability would be noted off balance sheet as a contingent liability. Governments have also, for years engaged in private public partnerships, all of which were designed to fund the public sector, whilst keeping the debot off balance sheet. These things are not hard to find, so I am surprised that Mark Grant is surprised to find out now that these things have been going on.

Fri, 08/31/2012 - 09:38 | 2752248 shokdee
shokdee's picture

!!!! Is this really surprising? !!!!!!

 

suffice to say?

Fri, 08/31/2012 - 12:01 | 2752949 goldfish1
goldfish1's picture

US under US GAAP

They threw mark to market under the bus, so how does gaap work now?

Fri, 08/31/2012 - 09:37 | 2752246 chinaboy
chinaboy's picture

Wash hands, take shower, don't believe European numbers. A personal hygiene 101.

Fri, 08/31/2012 - 09:41 | 2752260 shokdee
shokdee's picture

Take shower.

Wash oIo.

Wash x.

Hygiene 101.

Fri, 08/31/2012 - 09:40 | 2752258 deez nutz
deez nutz's picture

i am shocked, just SHOCKED!!

Fri, 08/31/2012 - 09:45 | 2752262 shokdee
shokdee's picture

ECT at a young age my furry friend? And could you pass a peanut please.

Fri, 08/31/2012 - 09:59 | 2752345 shokdee
shokdee's picture

When offered a frontal labotomy, I opted for a full bottle in front of me.

Fri, 08/31/2012 - 09:42 | 2752264 phat ho
phat ho's picture

that's what 'she' said

 

Fri, 08/31/2012 - 09:46 | 2752274 shokdee
shokdee's picture

indeed indeed

Fri, 08/31/2012 - 09:48 | 2752284 shokdee
shokdee's picture

i hope you enjoy the ride ...

http://soundcloud.com/enjoytheride-1

Fri, 08/31/2012 - 09:46 | 2752275 phat ho
phat ho's picture

it all comes down to a european hooker; do you want to keep the old one around, or do you start shopping around for some new fresh talent?

Fri, 08/31/2012 - 09:49 | 2752295 shokdee
shokdee's picture

wash your old pussy and it's as gold as gold

Fri, 08/31/2012 - 10:36 | 2752586 Umh
Umh's picture

Better; you can sell it over and over again.

Fri, 08/31/2012 - 09:50 | 2752299 Umh
Umh's picture

  This part just sounds absurd to me. "provisions will be lower during a recession, as there is less room for worsening."

 

"Dynamic provisioning, also called forward looking loss provisioning, is the adjustment of banks provisions for defaults on loans for the effects of the economic cycle, so that provisions will be increased during booms, to leave for the possibility or a downturn, and provisions will be lower during a recession, as there is less room for worsening.

from: http://moneyterms.co.uk/dynamic-provisioning

 

 

Fri, 08/31/2012 - 09:54 | 2752325 Wizard of Finance
Wizard of Finance's picture

This is probably one of the worst posts i've ever read in ZH.

More than out of the box, seems he has been out of the world for the last 15 years . 

he complains about methodologies used ( and published in detail)  by Banks, BOS, Eurostat, sovereigns, etc.. but where is his methodology? 

dynamic provisions for spanish banks were great and forced banks to over provision during the good days.  unfortunately, they were not enough.  

the mechanism to build and unwind these provisions was fully transparent and fully disclosed "ad nauseam" by all banks. 

Should US banks have used this mechanism we could  have avoided cases like Lehman, Citigroup, Wachovia, Washington mutual, and another 400 financial institutions in the US.

 

Fri, 08/31/2012 - 10:31 | 2752354 Umh
Umh's picture

Basically it will never be done. Governments and banks setting  money aside during times of surplus will never be done either.

Fri, 08/31/2012 - 12:52 | 2753124 No Euros please...
No Euros please we&#039;re British's picture

Look. It's not the banks' fault. It was mathematicians that invented (or discovered) the imaginary number, so why bitch about it just coz the PIIGS decide to take full advantage or it? It's not like they're cheating anyone or anything.

(yeah, this is sarcasm. Of course)

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