Morgan Stanley in a free fall. Goldman Sachs at multi-year lows. Citigroup looking Ugly. Bank of America off 50% from recent highs.

You may be wondering what is going on with the major firms in the financial sector. While each of these firms have different problems — vampire squids to Countrywide acquisitions — they all have something in common: Their balance sheets are opaque.

This is no accident. Indeed, it was by design that execs in the banking sector, and their outside accountants, hatched a scheme in 2008 to hide their balance sheets from public view. The bankers had been lobbying the Financial Accounting Standards Board to change the rules that governed “Fair Value Measurements” also known as FAS157 (September 2006).

You may recall during 2008 this was referred to as “Mark-to-market” accounting.

Banks loved m2m during a boom period. M2M made the more unusual balance sheet holdings  — derivatives, the mortgage-backed securities (MBS), exotic liabilities, and other assets — look fantastic. The fair value measurements of these items — essentially, yesterday’s closing price — allowed the accounts to show enormous profits. Those were the underlying basis for huge bonuses, stock option grants and of course, company share prices.

The reality was quite a bit different. These were not equities or treasuries or corporate bonds — they were thinly traded items whose prices were ramping upwards on a sea of delusional optimism. As soon as the credit bubble ended and housing began to retreat, these assets would free fall like an Acme anvil in a Roadrunner cartoon — and the bankers were the Coyote.

Uh-oh, this was gonna be a problem. So the bankers began to lobby FASB to change the rules governing Fair Value Accounting. Sure, it was hugely helpful on the way up, but now, reporting actual holdings — previously marked at all time highs — was becoming problematic.

To their credit, the accounting board resisted. What Bankers were proposing — marking to their models — was patently absurd. These were the models that told them these purchases were good ideas in the first place. Changing Mark-to-Market to Mark-to-Model was a free pass to practically allowed banks to NEVER have to write down their liabilities. Some people began calling the proposed accounting changes  Mark-to-Make-Believe.”

In the midst of the 2008-09 collapse, however, Congress was in a panic. They mandated that FASB accept Mark-to-Make-Believe accounting in the Emergency Economic Stabilization Act of 2008. It gave the Securities and Exchange Commission the authority to “Suspend Mark-to-Market Accounting.” In March and April of 2009, that is precisely what occurred.

It was yet another example of an industry lobbying Washington, D.C. to get precisely what they want — and then having that legislation blow up in their faces. (I detailed other examples of this in a chapter of Bailout Nation — you can see that chapter here: Strange Connections, Unintended Consequences).

The bottom line is this: Investors do not really have a clear idea of how healthy any of these banks truly are. We do not know the state of their balance sheets. We do not know what their exposures are to mortgages, to Europe, to Greece, etc. They could all be technically insolvent, as far as any investor can tell.

And that is exactly how the bankers wanted it.

But given the trouble in Europe, and the likely problems in housing if the US goes into a recession, Investors have decided they cannot take the risk of a holding an opaque, possibly under-capitalized probably over-leveraged financial firm blindly. They are telling the banks no thanks, we are not interested, we are going to be prudent and we have to assume the worst. Hence, for the second half of 2011, they have been selling off their holdings in these opaque, potentially insolvent too big to succeed entities.

Bankers, enjoy your beds. You made them, now lay in them . . .

Category: Bailout Nation, Bailouts, Corporate Management, Credit, Politics, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

54 Responses to “Banking’s Self Inflicted Wounds”

  1. cpd says:

    Absolutely true. But here is what is really scary – the bankers and their servant politicians are so locked in to their world of wealth extraction that they will let the economy crash and people live on the street rather then change their ways. They couldn’t care less that they are destroying our economic future. It’s openly discussed that politicians are bought and paid for and the bankers are getting everything they want. But nothing changes. That says everything.

  2. call me ahab says:

    sure,

    bank stocks are a big unknown and people are selling, but imagine where they would be if folks knew the truth and FAS157 wasn’t scuttled?

    the last 2.5 years have merely been an exercise in make believe

  3. machinehead says:

    Opaque balance sheets, you say?

    Welcome to Japan, honorable bankster-sans!

    Sayonara!

    Or better yet — Seppuku!

    Surely B of A, Citi, GS and MS all have headquarters buildings tall enough to leap from. JUMP!

  4. tebee says:

    But it’s just the banks. Government has applied an opaque gloss to the whole of the US economy.

    So what happens when the rest of the world loses faith in the almighty dollar ? Or is that currency just to big to fail ?

  5. Moss says:

    And now they label the new capital requirements of Basel III as ‘anti-American’.

  6. call me ahab says:

    this is a pretty picture (but maybe not for those heavily invested in emerging markets)- Hang Seng 1 year chart

  7. investorinpa says:

    And may these beds that the bankers lay in have bed bugs in them!

  8. dead hobo says:

    BR lectured:

    Bankers, enjoy your beds. You made them, now lay in them . . .

    reply:
    ———-
    Imagine a world where bankers, mostly investment and ginormous money center bankers, altogether stopped lying all at once and completely. Then they lobbied Congress to do the same on their behalf. Can you imagine how much individual wealth would vaporize on that day? Can you envision the confusion, terror, befuddlement, despair, and rancor that would result if all honesty broke loose in the banking trades all at once? The S&P would probably go negative for a while until the shock passed. The world’s financial systems rely on lies and deceit. We benefit from the lies when they work and we benefit from the bailouts if we managed the lies prudently as they exploded.

    Economically speaking, one could argue that we would not have so many lies from bankers if, as a societal whole, we weren’t better off with then than without them. If murders were as common as lies from bankers and their supporters, we would all be living in an apocalypse as a matter of everyday life. Yet we do our best to limit murders but we do far less to limit bankers’ lies, even knowing full well the financial apocalypses that continually result. Thus, one could reasonably conclude we want bankers to lie and accept the bad results as a part of an overall good that transcends the bad.

    I suppose this situation might be different if Uncle Stupid weren’t always there to bail out the world via money printing and deficit spending. But Uncle Stupid IS there and Uncle Stupid will bail out the bankers again, just like they always do.

    To come to the point, we wouldn’t have so many banker lies if we didn’t really want them or their consequences.

  9. wrongtrade says:

    You gotta love the link to the Roadrunner cartoon! And thanks Barry, for your candid insights into this difficult market. I, and certainly many other plain folks, greatly appreciate the opportunity to benefit from your outlook on these situations.

  10. mitchw says:

    nitpick alert. Isn’t it, “…now lie in them?” (Did you catch ‘lie’ has a double meaning, Barry?)

  11. budhak0n says:

    How’s about the minority view?

    All a bank is doing is giving a client or a business entity access to capital. It’s up to the borrowing party to make the right decisions with the capital they are given.

    If the “bank” is left holding the bag for a bunch of short time, silly little in and out, have to work a deal wankers, why was the bank at fault?

    I don’t like the fact that banks can operate their own trading accounts to the detriment of their clientele and I completely understand how market participants can get to hating but in all honesty MOST of the bad actors are so underwater with the stuff they got involved in on the real estate side that it serves very little purpose poking them in the ribs on their descent to hell.

    Just enjoy their demise. They’ll continue to exist. In that odd “american” corporate way of saying “I’m still here but I don’t really matter” but other than that besides the really big players who for some unknown reason continue to be lumped with the real estate tycoons of the world, some of the entities cited will simply be non factors in the decades to come.

    It’s like concerning yourself with Novell while Microsoft took over the world. Who cares?

    A “bank” is not extracting wealth from anyone. If you borrow a bank’s money to buy a house in your suburban sprawl and then rationalize yourself into some frenzy where you feel completely justified in not returning their capital, that’s a personal choice. But the bank didn’t do anything wrong They tried to do business with you.

    It’s not their fault that you wound up being a deadbeat. And if you’re a justified deadbeat, bully for you. Go get im.

    Everybody just needs to get back to playing the hands they are dealt. Worrying about whether or not the suit across from you stacked the deck serves very little purpose. It just makes the suit smile to know that he or she is in your head.

  12. NoKidding says:

    Articles like this are what makes this site worth a daily visit.

  13. rd says:

    The analogy to the Roadrunner cartoon is unfortunately very apt.

    In real life, falling off a cliff and having an anvil fall on you means that you are done and gone. In the Roadrunner cartoons, Wile E. Coyote is simply dazed and then gets up to go do something foolish again, just like our financial sector.

    I think we have an opportunity to resolve this over the next couple of years, although it will not be pleasant. I believe that the government will need to step in and stabilize the financial sector again; however, when they do this they should be “resolving” insolvent companies so that the shareholders are wiped out, management is replaced, and debt holders take a haircut.

    When the Coyote stops getting up with nothing more than a bump on the head, then this era will be over, and we will get a restart in a new era of growth.

  14. b_thunder says:

    No worries, the TARP and QE2 are coming. And those bank insiders who know when they will be announced will once again buy bank stocks for pennies on the dollar. The are too big to fail, the politics makes them impossible to nationalize, and when BO evaluates a Great Stock Market Crash vs TARP2 in an election year – that’s a no-brainer.

  15. toba says:

    budhak0n

    Banking and finance is generally parasitic…we need banks but only up to a point. Your example of a bank making an ordinary loan to a homeowner who can’t pay it back is not what has people on these boards talking about “wealth extraction”.

    Insatiable finance that creates phony baloney products DESIGNED to fail and then doubling down on it and bundling them up again with even more crap…then proceeding to lie about valuations by calling them money good. Think HELOCs that are counted as good even when the primary loan is delinquent!

    As for the deadbeat argument, please! There was an epidemic of mortgage and bank fraud piled higher than Mount Everest!! Janet Tavakoli, Bill Black, Karl Denninger, Mike Shedlock, etc have documented it on all of their blogs. No wonder the suits smile….they haven’t been prosecuted and probably never will be.

  16. eliz says:

    If any of the TBTE (too big to exist banks) is solvent, and wants their stock price to rise, all they need to do is Mark-to-Market and make that known. (No, lying is not allowed!) Their stock price will get a huge boost, and/or this will force the other TBTEs to do the same.

  17. Expat says:

    I missed something. Why would the bankers lie in smelly, broken beds? Have you learned nothing since 2007? WE will change the sheets, replace the mattress and even upgrade them to better rooms if they want. Can’t have bankers sleeping rough or being uncomfortable, can we? They are, after all, Job Creators!

    Remember Midnight Oil’s “How can we sleep when our beds are burning?” Well, the bankers sleep very well because they burn their beds and get new, comfy ones from Uncle Sam.

    Really, Barry, to suggest otherwise is frankly un-American.

  18. [...] in interest-free money and a two-year period of do-whatever-you-need-to-get-better.  Apparently they needed to get even more too-big and pay even heftier bonuses than ever before, not reduce risk or open up their balance sheets for [...]

  19. [...] Ritholtz has a good piece up this morning about how the problem with the banks is that we have no idea what they are worth [...]

  20. Concerned Neighbour says:

    Bravo Barry, bravo. This is the main reason I haven’t touched banking stocks since 2008, and as long as this decision stands I will never buy a banking stock again, regardless of price. For all we know, as you say, these banks may be insolvent. I suspect many of them are. And if they aren’t nationalized the next time they come cap in hand to government, there will be riots in the street.

    A prime example of kicking the can down the road.

  21. ZackAttack says:

    Can you imagine a Congresscritter voting for TARP 2.0 now? Can you imagine an administration official going on television to explain how we have to bail these guys out yet again?

    I honestly can’t.

    The key, then, is figuring out how the bailout will be shielded from public view and performed in such a way that it never comes up for a vote.

  22. Petey Wheatstraw says:

    dead hobo Says:

    “Can you imagine how much individual wealth would vaporize on that day?”
    ___________

    Can you imagine how much imaginary wealth would vaporize on that day?

    The wealth is an illusion. The debt is real. That’s the point.

    I’m not too big on pop psychology, but I do believe that this is where we are:

    Dysfunctional family

    From Wikipedia, the free encyclopedia

    A dysfunctional family is a family in which conflict, misbehavior, and often abuse on the part of individual members occur continually and regularly, leading other members to accommodate such actions. Children sometimes grow up in such families with the understanding that such an arrangement is normal. Dysfunctional families are primarily a result of co-dependent adults, and may also be affected by addictions, such as substance abuse (alcohol, drugs, etc.). Other origins include untreated mental illness, and parents emulating or over-correcting their own dysfunctional parents. In some cases, a “child-like” parent will allow the dominant parent to abuse their children.[1]

    http://en.wikipedia.org/wiki/Dysfunctional_family

    The entire Wikipedia entry is worth reading and applying to our current extended economic/governmental/societal “family” structure.

  23. Lugnut says:

    They wanted it opaque so they could say their leverage ratios were what they wanted them to say. Capitalization requirements be damned. If they dont want to fully disclose their balance sheet, a reasonable/prudent investor can only assume the worst case scenario with respect to what assets they truly hold. End result: Short ‘em all. Mr Market has spoken; that which they will not disclose on the books, will be declared by analysts via their share price. Different set of tea leaves, but probably just as accurate.

  24. Greg0658 says:

    what are the ramifications of TBTFs going private in this present day .. can the law make them play lawfully, nice & share .. does the system needing the system to work, work for TBTF or the meek

    and budhak0n@8:32am – nice spin – the system is meant to fulfill isn’t it – games need fair play and this game is 21st century tops gameplay :-)

  25. Julia Chestnut says:

    I don’t know – I think maybe a little of it is kind of what Meredith Whitney has been saying all along: the “banking” side of banking is a staid, boring, safe little business that pays very modest but stable returns. It’s also a public good: we may not like giving a cut of our money to the bankers for their services, but we understand that we have to in order to get access to capital.

    But since they went all in at the casino, banks no longer feel anything whatsoever for the traditional “banking” side of their business. It’s like a guy who leaves his wife of 20 years for some stripper he met: sure, this is risky and likely going to be costly, but it sure is a WHOLE lot more fun.

    Whitney has been saying for a long time now: where are the bank profits going to come from once you are relegated to the old school business lines? I think the bankers know that very, very well. . . and they have no inclinations to go crawling back to their wives, so to speak. BOA’s charge to customers for using a debit card is the first shot over the bow, in fact. They will be getting rid of the consumer side of banking, because they really can’t see why they bothered to provide a public good in the first place. They have long not wanted to bother with anyone who doesn’t have enough wealth to generate substantial fees for collateral lines of service – very well then. They’ve decided that they won’t. The big banks will be driving the hoi-paloi out of their sphere altogether.

    I think that, to some degree, that maybe people realize that “banking” as we have formerly known it is about to change its model drastically. I think that BOA’s shot over the bow might be a sign that the big banks are either shifting gears and doubling down on a gamble that may destabilize their business in the short term, or are unattractively desperate. Either probably isn’t a good reason to hold BOA stock.

    Granted, I’m just some nut and I don’t own any bank stock. Just random thoughts I had over the past week watching banking news and banking stocks.

  26. AHodge says:

    bingo
    agree with most all and the conclusions esp
    its even worse than this.
    the opaque that folks babble about 4 YEARS later
    is mostly THE SAME DEAL priced way different on the two sides
    guess which side is bigger the asset or the liability
    and multiply by several million of these derivatives and others out there
    in fact for some complex prod like CDS
    BOTH sides claim an asset or enhancement– im not making this up

    there is talk of US reform the Herz FASB proposal to do it both ways
    Shapiro fired him and the proposal is twisting in the wind–pretty much kaput
    but that not enough you will need to retrain the financial accountants
    europe is even worse than the US
    Max Weber was the arch priest of bad accounting
    now europe reaps the results their hidden bank losses are 2-3 times any reasonable sovereign debt writedown
    and they are lookin for their geithner style bailout with the markets as hostage
    got to be short till then

  27. AHodge says:

    there are two legitimate probs w marking
    assets go up in a boom — there is more discretion
    and capital loss in a bust could shrink lending.
    but these can be managed, the latter by giving banks a temporary pass on compete capital in a bust
    thats why you have reserves
    for a rainy day
    then there are two completely illegitimite bastard reasons
    1 your customers dont know WTF they are buyin how overpriced
    2 you can blow up a fake asset structure and bonus half of it
    this is why the humorously named “”Fair Value Coalition”” and others spent at least $50 million fighting good accounting

  28. Nuggz says:

    “Investors do not really have a clear idea of how healthy any of these banks truly are. We do not know the state of their balance sheets. We do not know what their exposures are to mortgages, to Europe, to Greece, etc. They could all be technically insolvent, as far as any investor can tell.”

    Warren Buffett would disagree.

  29. budhak0n says:

    lol Petey. Yeah that’s the ticket.

    We’ll bring back “you” in a remake of It’s a wonderful life .

    I had a bunch more to write but it’s really not necessary.

    Deal with what you have before you, not what you wish it would be. If it’s dys, it’s dys. If it’s gravy, it’s gravy.
    Stinky onions? Stinky onions it is.

  30. AHodge says:

    so the problem now is not only banks imploding and wont lend to each other from bad accounting
    europe looks now like we both did in late 2007.
    but securitization is still mostly broke–from bad accounting
    because the buyers still have enough basic cunning and recent lessons learned
    still holdin their noses at the “hold to maturity” overpriced asset backed securitizations now on offer–markets arent clearing.
    oops there goes your credit supply system—- as “banks” too busy repoing to lend
    and the FDIC wont allow any new in

  31. johnborchers says:

    Julia… Re: Meredith Whitney;
    She recommended buying Lehman. I wonder why no one remembers when she was positive banks when they were trying to recapitalize when the boat was sinking?

    Saying how there balance sheets were suddenly good, LOL.

    This of course, was before the major collapses started occuring.

  32. Petey Wheatstraw says:

    budhak0n:

    What “ticket” are you referring to? Mine was just an observation, not a recommendation — you seem to have read something else into it, entirely. Maybe you should have written more.

    What we have before us is global debt that is unrepayable, with a deflationary momentum that will further empower those who did the scamming. No wishful thinking involved.

    Dude: those “stinky onions” in front of you are turds. If you want to “deal with them,” by sucking up a heaping helping, go ahead. Bon freekin’apetit! Maybe you’ll enjoy the results.

  33. acai says:

    I can’t imagine buying any stock, such as a big bank stock, where the balance sheet is so fraudulent and impossible to understand… that even a team of experienced accounts could not possibly determine the value (or extent of insolvency) of the company.

  34. budhak0n says:

    Wow. Petey’s a little testy today. You long?

    There’s no “GLOBAL debt” that is unpayable to my neck of the woods because I wouldn’t lend them squat.

    Everything is relative.

    Deflationary momentum in terms of what exactly? Asset prices? Equities? …

    The turds are always there and we’re always “dealing” with them. Just another day in paradise.

  35. AHodge says:

    Nuggs
    re buffet disagreeing this is just wrong
    he on TV last night saying to euro banks dont ask me for any money
    as to his Bof A deal–its an option w huge payout multiple that depends mainly on a bailout–no balance sheet judgement needed
    not that i am a big buffet fan anymore-good investor but bit of a sellout esp on the credit agencies

  36. Petey Wheatstraw says:

    budhak0n:

    “We’ll bring back “you” in a remake of It’s a wonderful life .”

    Did I mistake your meaning?

    Deflationary momentum as in a strengthening dollar (despite the huge increase in the supply, via QE), against all else (and, yes, I do hold USDs and very little personal debt).

    Like it, or not, you are as much on the hook for our shared (national) debt as is anyone else (same goes if you are not a US citizen).

    The “turds” are massive by any historical measurement.

    Like eating turds, accepting criminality and fraud in order to get along is okay, as long as you can stomach it.

    That said, you seem to support my comment: Let the beatings continue (cause we wouldn’t know how to live without them).

    Lol, indeed.

  37. Julia Chestnut says:

    Ah yes, John: but she doesn’t have to be right on everything. It just always hit me when I heard her comment that she kept harping on the fact that banking is not a massive profits enterprise, historically speaking – just a steady, solid profits enterprise. That is undeniably true. I don’t think a lot of people called Lehman to be the one to go down — and Goldman and AIG to survive? But I don’t figure that matters to the underlying point.

    If you restrict the profits on banks’ revolving credit operations, what is their incentive to stay in the highly regulated industry of commercial banking? Now that they are used to getting really, really fat on skinning people, do you really expect them to go back to how it used to be?

    I thought it was an interesting comment, because it was one of the few comments I heard during that time that assumed that bankers didn’t assume that their business tomorrow would be structured the way it is today. It struck me that, if every large bank in the country hadn’t asked itself that question, it deserved to be burned down. And I’ve been watching, while the banks got steady infusions of free money from Uncle Bennie and lied right and left about everything inside their black-box asset pool, to see what they would decide to do once they made up their minds exactly how they were going to keep raking it in.

    I think that they have many irons in the fire, actually. But I also see big, noisy public moves against your ordinary depositors (those people getting .0001% interest on their accounts) as a sign that something is afoot.

  38. [...] Ritholtz is blaming the falling value of bank stocks on the decision not to require mark-to-market [...]

  39. FarmlandLP says:

    Hi Barry,

    Your article on FAS157 is right on, but you point the finger at the wrong place.

    We agree that “The bottom line is this: Investors do not really have a clear idea of how healthy any of these banks truly are.” Then the question is why were _investors_ putting their money with these companies?

    I went all cash in 2008 when FASB and the SEC said that banks wouldn’t have to roll their off-balance sheet “assets” onto their books…while at the same time they were raising equity capital. That was enough for me to know that those $11 trillion in “assets” were really liabilities, and that it was time to get out of the markets entirely after being fully invested for 20 years.

    If you can’t trust a balance sheet and income statement, then you’re not investing…you are gambling. If the investors had held their management teams to account in 2008, and sold their stock until the books were made transparent, we would have avoided a lot of this mess. But they didn’t, and they got bought by a few % extra in short-term returns.

    And now we have entire governments marking to fantasy, assuming there are no consequences to issuing trillions in currency. Good luck with that. I’ll come back in when people start telling the truth and the gamblers have lost their seat at the table. I’ve been waiting since 2008, and I’m prepared to wait for as long as it takes.

    Disclosure. My one stock holding is SKF…just to give myself a long-term reminder on why I got out. I’ll come back in when SKF returns to its proper status as a horrible long term investment.

    Keep up the great writing Barry.

  40. HoldYourHorses says:

    Surely we (the non-Wall St tax payers) are the ones made to use the foul beds in the form of bailouts and subsidies, not to mention our usurped government, as this game unravels?

  41. Futuredome says:

    The reason the banks don’t want you to know who is “defunct” is because that would collapse the economy right there. So Citi and BofA are dead while Goldman Sachs is ok. Doesn’t matter, the former will completely blow the economy up.

    Capitalists will pull out all money out of circulation and then allow their investments to end and corporations to collapse. Then sit on the dough while it revalues upwards. The poor and debtors will revolt thus demanding major government investment mobilization, nationalization of finance and isolationism/protectionism. Banks are destroyed and rebuilt under far tougher rules. The bankers had this happen already. It was called the great contraction. Even though they wrote GS and other new deal era controls on banking, it was done with a gun to their head.

    Alot of you people do not understand finance or the history it has come from. Even the Federal Reserve System has changed quite a bit since its inception in 1913. No one era is quite ever the same, but lessens in that history are never forgotten.

  42. Futuredome says:

    I should also add, the crisis ends with either a government takeover or expiration of contract. Either the market runs on the banks and the government steps in to stop systematic failure or the banks bad bets expire leading toward solvency of the private credit mechanism.

  43. philipat says:

    Fear not, they will change back again to FAS 157 as soon as the markets recover and there are better bonuses to be had through M2M. And of course, as a wholly owned subsidiary of Wall St, Congress will be pleased to assist.

  44. [...] Governments Will Act: The presumption among bears is that the political bureaucracy will try to look like it’s doing something, but will just keep doing the same things it’s been doing so far – which obviously have not worked and have likely made things worse. This toxic combination of prolonged ineptitude and impotence may give rise to more civil unrest as it dawns on average citizens that the trillions of dollars of relief they gave to the banks in the last crisis fixed nothing. (If you still don’t understand how this happened, please take a look at The Great Bank Robbery or Banking’s Self Inflicted Wounds.) [...]

  45. Alex says:

    Ok, picking a nit.

    I think you mean writing down assets.

    Writing down liabilities is a positive for anyone, including a bank. And I know its temptingly poetic to refer to assets that are really liabilities. But that is truly the case only if the assets have a negative real value. My inner bean-counter feels better now.

    This whole exercise in hiding things is just one of many bad decisions that are inexorably destroying the value of these banks. I guess that bankers don’t believe that trust can be valued, so they constantly take actions to monetize it away. But of course, all financial institutions are really worth nothing (or less than nothing) if counter parties have lost trust in them.

  46. [...] Recovery, accounting. I think Barry Ritholtz made some good comments on this score. He called it Banking’s Self Inflicted Wounds and [...]

  47. [...] Banking’s Self Inflicted Wounds | The Big Picture [...]

  48. ToNYC says:

    dead hobo Says:

    “Can you imagine how much individual wealth would vaporize on that day?”
    ___________

    Can you imagine how much imaginary wealth would vaporize on that day?

    The wealth is an illusion. The debt is real. That’s the point.

    The new point is that the debt becomes an illusion as the future currency falls to meet it at the point where it becomes meaning less. Currency is what it buys right now,while the getting is good. Whether an equivalent value appears is the future’s issue). Stabiility may be measured by the half-life of your tool kit.

  49. [...] America’s very own, very different, peripheral exposure [updated] – FT Alphaville Banking’s Self Inflicted Wounds – Barry [...]

  50. Sunny129 says:

    Madeoff ACCOUNTING with phantom PROFITS in the Madeoff ECONOMY!

    Now those ‘profits’ raked up in the rigged market recovery of nearly 90% since March 2009 is’ fading’ into REALITY of M to NO ONE believes accounting!

  51. [...] Barry Ritholtz had an excellent column on that yesterday called Banking’s Self Inflicted Wounds. [...]

  52. [...] Big Picture has a great article about the change in bookkeeping that occurred in 2008 at the behest of the banks, which has [...]

  53. [...] Banking’s Self Inflicted Wounds - TBP They could all be technically insolvent, as far as any investor can tell. [...]