A former bank regulator – William Black – makes the accusation; from Mish’s:
AAron Task: Should we be surprise there are not more bank failures?
William Black: Not Surprised,we should be upset there are not more bank failures. The industry has used its political muscle to get Congress to extort the financial accounting standards board to gimmick the accounting rules so that banks do not have to recognize their losses.
Aarron Task: In practical terms, what does the gutting of that rule mean for the banks?
William Black: Capital is defined as assets minus liabilities. If I get to keep my assets at inflated bubble values that have nothing to do with their real value, then my reported capital will be greatly inflated. When I am insolvent I still report that I have lots of capital.
Aaron Task: You are saying the FDIC is intentionally keeping foreclosures down because it knows it does not have enough money to pay off depositors who are insured by the FDIC?
William Black: That is correct and that is going to make ultimate losses grow. It also means we are following a Japanese type strategy of hiding the losses and we know what that produces – a lost decade, which is now two lost decades. Your listeners and viewers if they are stock types, look at the Nikkei. It lost 75% in nominal terms and has stayed that way for 20 years. I real terms it lost 85% of its value. This is a really stupid strategy. And it’s ours…
This is what I’ve suspected all along – but even so, there is no actual proof of it. But 109 banks have failed in 2010 and we’re on track for many more failures than we had in 2009. Furthermore, it is known that FDIC is out of money.
This “extend and pretend” tactic allows FDIC to not go running to Congress for a bail out, which would be politically horrific just in front of the mid-terms. It also lulls less informed investors in to thinking that our financial system is sound, thus helping to keep stock prices up. Finally, it allows Barack Obama and his Democrats to pretend we’re not in a Depression.
But it can’t be sustained – eventually, the books do have to balance. Tomorrow; next week, next month; next year…one of these days, the complete collapse will arrive and it will be far worse than it had to be because we allowed banksters, bureaucrats and grafting politicians to pull this nonsense.
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