Wednesday, October 8, 2008

David Reilly Catches On

"Banks are looking for relief in all kinds of places. While the bailout plan has garned the most attention, banks also want the government to twist accounting rules so that they don't necessarily have to recognize some losses that would dent capital. ... It shows, though, that banks still refuse to acknowledge that they made bad investment decisions. They keep hoping markets will rebound and losses will go away. ... As the credit crunch grows longer in the tooth, it is becoming more apparent that banks are sitting on big losses that won't bounce back. So auditors are increasingly pressing banks to face up to them. ... SEC officials met with the ABA and auditors Thursday to hear the arguments. An official said the agency was looking to hear all views so that it could reach 'reasonable judgments' on the use of market-value accounting. That's fair, but the SEC shouldn't give the banks any wiggle room. Banks blew it when they made these investments. They should now come clean with investors", my emphasis, David Reilly (DR) at the WSJ, 26 September 2008.

Part of banks' problem is: their cost accounting is terrible. Many, perhaps most banks, don't know which products they sell are profitable. See my 3 September 2008 post about UBS for example. Joe Jett (JJ), who I've discussed before, was accused of committing a $335 million fraud. Giving Kidder Peabody (KP) every benefit of any doubt, KP didn't understand JJ's business was not profitable! Note, it's KP I give the benefit of the doubt. I never saw any evidence JJ did anything wrong. Chris Cox's (CC) SEC is a joke. There are no "reasonable" arguments. CC should have told the bankers in the room, "Bubbies, learn the Fifth Amendment. Shut up. You're out of here. I referred your: bank, CFO and controller to the SDNY US Attorney's Office, Mike Garcia personally. I will ride herd on him until he indicts you all. That's it. This meeting is over".

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