Accounting Fraud of the Too Big to Fails May Be Worse Than Enron

Discussion in 'Economics' started by observer67, Dec 3, 2009.

  1. Nomi Prins - former managing director of Goldman Sachs and head of the international analytics group at Bear Stearns in London - is saying the same thing that financial bloggers have been saying: The giant banks are manipulating their books to make themselves look profitable.

    In fact, Prins says that this might be worse than the fraud which occurred at Enron:

    Enron was the financial scandal that kicked off the decade: a giant energy trading company that appeared to be doing brilliantly—until we finally noticed that it wasn’t. It’s largely been forgotten given the wreckage that followed, and that’s too bad: we may be repeating those mistakes, on a far larger scale.

    Specifically, as the largest Wall Street banks return to profitability—in some cases, breaking records—they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.

    Surely someone with Prins' financial background can sort out the accounting of the TBTFs?

    In fact, no:

    After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have the same concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.

    I was trying to answer the simple question that you'd think regulators should want to know: how much of each bank’s revenue is derived from trading (taking risk) vs. other businesses? And how can you compare it across the industry—so you can contain all that systemic risk?
    The giant banks have played so many games of massaging numbers (see this), hiding losses off the books (see this) and - as Prins documents - failing to report core data and shuffling things around so that it is impossible to tell what they are doing.

    Indeed, financial writers (like Reggie Middleton, Mike Shedlock, Tyler Durden, Karl Denninger and others) who have dug deep and analyzed the underlying data say that the giant banks are totally insolvent. This wouldn't be the first time that the biggest banks went bust and then covered it up over a period of many years.

    Prins offers a solution:

    The long-term solution is bringing back Glass-Steagall. Being big doesn’t just risk bringing down a financial system—it means you can also more easily hide things. Remember the lesson from the Enron saga: when things look too good to be true, they usually are.
  2. there is nothing easier to do than a bookkeeping entry.

    WALL STREET 5,000,000.00
    MAIN STREET .......................5,000,000.00
  3. Any rule can and WILL change in order to keep the bull running.

    Even if the books are downright fraudulent, there will be a clemency period where they can come forward, admit what they've done, and get back to work.

    ALL of these bearish points NEVER stick.

    Yes, the fix is in. On the LONG side!
  4. the US doesnt audit the fed, so what is the point in auditing GS, JPM etc?

    let them own the world, we just need food stamps and cash for clunkers
  5. I had said this long before Nomi Prins - former managing director of Goldman Sachs said so.
  6. pitz


    I've said this a few times and in a few different places -- by the time this mess is all said and done, none of the big banks will exist as going concerns, and all of the big accounting firms will have been most thoroughly discredited, along with the profession itself.
  7. poyayan


    Of courses it is..:)

    Remember the saying? When you owe the bank $100 bucks, the bank own you. When you owe the bank $100mil, you own the bank.

    Well, Enron isn't big enough and it is dealt with by the book just like the little guys.

    When the government need to insert "mark to myth", "no sell short rule" & "special FED facilities" just to accommodate you. Yes, you own the bank - aka the government.

    TARP money? Please... It is not even in the same digit as the stuff I mentioned above.