Saturday, March 13, 2010

US Financial Market Truisms

It has been one year since the stock market started its rally. This was after a terrible bear market following the collapse of Wall Street firm Lehman Brothers.

You remember that time...Wall Street, drunk with greed, drove the nation's economy to the brink of financial Armageddon.

To save Wall Street from losing their license to dangle the nation's economy off a cliff, the Federal Reserve and country's elected elite and their minions at their Treasury Department threw Wall Street a huge bailout party.

Treasury secretary Tim Geithner, while head of the New York Fed, approved billions of taxpayers dollars to go to Goldman Sachs through the AIG conduit.

Most of the details of that deal have been sealed for a decade by the government due to "national security concerns". What a joke!

Then the government allowed Wall Street banks to replace mark-to-market accounting. Mark-to-market means that banks had to value assets (loans, etc.) at what they are really worth in the marketplace.

This was replaced with mark-to-model accounting which valued assets at some number based on some theoretical model of what the assets should be worth. In effect, this is mark-so-I-get-a-bonus accounting.


Just this week, we had the bankruptcy report on Lehman Brothers. It was a damning report.

Once again the investing public learns, after the fact, the basic truisms of modern US financial markets.

We had already learned that the ratings agencies - Moody's and Standard & Poor's were worthless. Since they were paid by Wall Street, they would rate almost anything put out by Wall Street as AAA. No matter what kind of snake oil Wall Street was selling to investors.

Now with the Lehman bankruptcy report, we've learned that major accounting firms are also worthless to investors. They were either unable or unwilling to detract fraud at Lehman amounting to $50 billion dollars!

Based on the bankruptcy court report, Lehman was technically insolvent for years before it collapsed.

Yet former Lehman CEO Dick Fuld claims he knew nothing about the billions of dollars being hidden by Lehman 'off balance sheet'. Yeah, right. That tells you something about the ethics of Wall Street.

This report should also tell investors that the Securities and Exchange Commission (SEC) is also worthless. Their list of failures includes Bernie Madoff and now Lehman Brothers.

They are supposed to protect investors, but they don't. The SEC seems to believe the criminal executives who commit the fraud, and ignore the whistle-blowers who uncover the fraud.

Finally, this should tell investors something about stock market analysts and the financial media. There is no real analysis being done...they are just cheerleaders and mouthpieces for Wall Street.

It's no wonder that faith globally in the American brand of capitalism is at an all-time low.

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