January 07, 2013

Don't trust the banks? Financial pros don't either

An in-depth article in the Atlantic says that Dodd-Frank (why is he overrated, anyway?) and other financial measures of the past four years have done almost nothing to make banks more transparent or more trustworthy.

And, that financial world experts know that, and that's why bank stocks remain depressed and more. Here's a good selection:
More and more, the people in the know don’t trust big banks either. .... Some four years after the crisis, big banks’ shares remain depressed. Even after a run-up in the price of bank stocks this fall, many remain below “book value,” which means that the banks are worth less than the stated value of the assets on their books. This indicates that investors don’t believe the stated value, or don’t believe the banks will be profitable in the future—or both. Several financial executives told us that they see the large banks as “complete black boxes,” and have no interest in investing in their stocks.
And, this issue is scary. Scary indeed, as a look at Wells Fargo shows:
Like other banks, Wells Fargo uses a three-level hierarchy to report the fair value of its securities. Level 1 includes securities traded in active, public markets; it isn’t too scary. At Level 1, fair value simply means the reported price of a security. If Wells Fargo owned a stock or bond traded on the New York Stock Exchange, fair value would be the closing price each day. 

Level 3 is hair-raising. The bank’s Level 3 estimates are “generated primarily from model-based techniques that use significant assumptions not observable in the market.” In other words, not only are there no data about the prices at which these types of assets have recently traded, but there are no observable data to inform the assumptions one might use to generate prices.  
Even worse, Wells Fargo has significant "exposure" to Enron-type Special Purpose Vehicles. But, because of the opacity of its reporting, you, I and even the best of journalists don't know how dangerous this "exposure" is.

First, the roots are bipartisan, going back to Larry Summers and other neolib Democrats leading the charge in the late 1990s to repeal Glass-Steagall. (Frank, though voting against the repeal, in his words was at best equivocal in his opposition.)

Second, that bipartisanship has increased through campaign finance corruption.

Third, there would be one way to stop it. FORCE Congressional pensions to be invested with these deceitful banksters.

Fourth, per the article's authors, we could make the rules much fewer, but much more broadly written. It was that way at one time, they note, and courts gave regulators more leeway.

The Jamie Dimons of today who complain about "overregulation"? They like it that way.

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