The biggest problem with the financial markets today is the fraud.
Fraud is endemic in the financial system today. We know that the currency, stock, bond, and even commodity markets have ALL been manipulated by Investment Banks or Central Banks.
No matter how sophisticated your analysis is, if your data inputs are garbage, your forecasts are garbage. We now know that the prices in just about every asset under the sun are garbage. Good luck computing with that.
Then there is balance sheet fraud. After the 2008 Crash, the regulators suspended accounting standards that required the banks to price their assets at market-based values. The reason the regulators did this was because the market priced these assets at pennies on the Dollar, if not ZERO.
This meant that most banks were insolvent and bankrupt.
Today, most banks are valuing assets on their balance sheets using mark to model accounting standards. Since the “models” used to price these assets are developed by the banks themselves with NO oversight, “mark to Model” is effectively a phrase term for “make believe.”
Beyond simple price manipulation and balance sheet fraud, we also know that earnings, or the money that companies allegedly make after costs, are fraudulent.
Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.
The reality is that this practice is far more endemic than the 20% discovered in this study (it’s likely over 50%). Given that most C-level compensation packages are based on stock options, the value of which is determined by stock prices… which respond to earnings beats, CFOs have tens of millions of Dollars worth of personal wealth on the line when it comes to massaging earnings.
So… the prices of assets are fraudulent, the value of balance sheets is fraudulent, and earnings are fraudulent. This means that stock market caps, balance sheets, and income statements are all inaccurate representations of reality.
Sitting atop this mountain of fraud is the Federal Reserve…. the US Central Bank that owes its very existence to fraud (if Americans understood how the Fed was created and who controls it, it would have ceased to exist decades ago).
This is the same organization that claims inflation is too low, that the Wall Street bailouts were about helping Main Street, that the US is in recovery, that it will not monetize the US debt, that it has an exit strategy for its $4+ trillion balance sheet, that it is an independent entity etc.
At this point, finding a data point or claim in the financial industry that isn’t massaged or an outright lie is like finding a needle in a haystack. The entire system is rotted structure built on a foundation of lies, manipulations, and deceits.
Until the garbage is cleared out we are set for another crisis. The only difference is that this time around, when stuff hits the fan, the entire system will break, not just a handful of banks.
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