Yesterday an article in the WSJ "exposed" the dirty little secret that the big banks are playing games with their equity ratios. Really? Are you shocked? Really?
Most of the time the big banks operate with as much leverage as they ever have, but at the end of each quarter, when they have to make their equity look decent, they sell their short-term investments, repay their short-term loans, and boost their equity for a day.
This is exactly what I am talking about when I say, create a rule and we clever financial people will find a way around it. And you, stupid regulators, can't close the holes we made 5 years ago, much less the ones we made last week.
If you want to know the true state of affairs at a bank, look not at their balance sheets or income statements, but at their cash flow from operations. Anyone can charge late fees, and over limit fees and high interest on carried balances, but can they collect it? The revenue goes into the income statement and results in a paper profit, but the cash flow shows how little of those fees are really being collected.
We seem to have unlimited optimism when it comes to believing that we have recovered from the greatest meltdown since the Great Depression with nothing more than the scratch of temporary unemployment to show for it.
The truth is far from the sugar-coated balance sheets we will be seeing out of the banks this quarter. The truth is that the banks are so desperate to run ahead of their mounting default rates that they are willing to play games with their liquidity to eek out a little extra trading profit.
The truth is that they haven't changed. Not fundamentally. And neither has anyone else.
And it is going to all splash back on the federal government. The wall that should exist between the public and private sectors have been completely shredded to the point where the taxpayer is on the hook for every loan and guarantee ever given, from mortgages to student loans to FDIC insurance to CDSs.
And yet the big boys keep playing with fire. And the big boys keep cashing out. Want to know what's really going on? Look at insider selling. Look at how desperate the government is to find out which foreign countries are helping the big boys stash their cash.
Don't kid yourselves. The rats have all built life rafts and private planes to get to them. Like building nuclear weapons with the power to destroy the earth many time over, they have taken out a collective $650 trillion in derivative insurance* to help them sleep at night while they wait for the inevitable.
*the entire world is comprised of only $75 trillion in man-made assets, so good luck collecting....
And the Average Joes, who know they'll never escape, keep living on credit cards like there's no tomorrow.
And the government? Fiddle, Nero, fiddle.
Wealth Shift. Wealth Shift. Wealth Shift. Round and round it goes. Where it stops...