The “American Plague”
Sun Sep 02, 2007 at 11:58:31 AM PDT
The world is feeling the effects of what has been termed "the American Plague:" bogus accounting methods widely employed by Wall Street giants. This video clip titled mark to make believe says it all.
When the whole Ponzi scheme blew apart, suddenly all the misdealing was blown wide open to view. The finance blogsphere is having a field day exploring white collar crime, but the MSM steadily drums for the blood of the little guy as scapegoat.
Before the kleptocracy formally pillories the US mortgage holder, we must consider an issue of Russ Winter‘s daily blog titled Chorus Against the American Plague which outlines the legal (!!) accounting gimmickry which lies at the heart of the finance meltdown.
As Winter reports, there is global concern that US firms can not be trusted to honestly state their assets:
A dishonest, corrupt system such as the one that exists in the United States is all about anti-transparency (...)That way looters and white collar criminals can hide their activities and exploit fictitious capital, often with the full support of government, legislators, and regulators. We are now seeing overt efforts to help those who should be exposed to the light of day to instead crawl further into dark shadows, caves and crevices to cover up their ill got gains.
One of these techniques mentioned in Wednesday’s post is FASB rule 157 on "level 3″ accounting. Incredibly just when mark to model accounting is falling into disrepute, along comes new rules that effectively allows mark to "what ever you feel like".
Then there’s Level 3. Under Statement 157, this means fair value is measured using "unobservable inputs.’’ While companies can’t actually see the changes in the fair values of their assets and liabilities, they’re allowed to book them through earnings anyway, based on their own subjective assumptions. Call this mark-to-make-believe.
Winter
Throughout the world outrage escalates towards the system-wide accounting abuse practices of Wall Street
Furthermore the hedge funds have glossed up all this wizardry on mostly borrowed money:
... the New York Federal Reserve Bank issued an unprecedented public warning regarding the hedge fund industry (...) a warning that the $17-trillion hedge fund industry, 93% of which is debt financed, or in other words, based principally on borrowed money (...)the principal driver of the global economic collapse scenario is and will be the hedge fund industry.
(...)
As the Fed points out, referring to the total "assets" of the hedge fund industry is a misnomer. It should be really called the total "debt" of the hedge fund industry, since 93% of their assets are debt, even though they carry it as "assets" on the books.
(...)
What the Fed points out is that aggregate hedge fund debt is now approximately twice the average daily ‘free money supply’ of the entire planet. Free money supply – they use the word "free" meaning "net," i.e. the unencumbered money supply of the planet.
Repeat: About $15 TRILLION of the money they play games with is BORROWED money.
And the world's banking community is incensed:
Swiss central bank head Jean-Pierre Roth lead off with what can only be called the ultimate "what the hell is wrong with you?" volley. This was then followed out of Europe by a call to create an international body to keep an eye on American virus labs and shysters.
Politicians, regulators and financial specialists outside the United States are seeking a role in oversight of American markets, banks and rating agencies in the wake of recent problems related to subprime mortgages. Their argument is simple: The United States is exporting financial products, but losses to investors in other countries suggest that American regulators are not properly monitoring the products or alerting investors to the risks. "We need an international approach, and the United States needs to be part of it," said Peter Bofinger, a member of the German government’s economics advisory board and a professor at the University of Würzburg.
source
And again:
A superb editorial out of the Asia Times defines the real story about the American Plague:
The epicenter of the crisis is in the US, but the reverberations are global - thanks to the universal implementation of the Basel Accords. In retrospect, the accords were a stealthy virus that contaminated the global financial system. Under the guise of improving financial regulation, supervision and stability, banks around the world were given a rating-based framework to manage their portfolios and risks better. Unfortunately, the pathway to hell is lined with good intentions.
Given the dearth of rated instruments in non-Group of Seven countries, financial institutions around the world reduced their credit staff and local assets - replacing them with rated instruments peddled by the investment-banking community. Sensing a unique opportunity, Wall Street distributed repackaged US consumer loans throughout the globe, creating a systemic time bomb that would eventually explode.
source
Of course the MSM is reporting the collapse in confidence as being rooted in the putative ‘reckless borrowing’ of the US mortgage holder.
The mortgage crisis is but a symptom of global accounting gimmickry which often has been sheer fraud. It just so happens that all the kleptocracy shills are trying to twist the story to where the caboose on the financial train to hell - the US mortgage holder- becomes the star of the show.
I say look closely, and the US mortgage holder is likely dying of death by ten thousand cuts, many of the current foreclosures perhaps rooted in stories which were strong candidates for the script of SICKO. Enough already with perjoratives thrown at the little guy. Time for credit where credit is due: utterly criminal malfeasance at the highest echelons of Wall Street and government.
NO MORE SCAPEGOATING THE LITTLE GUY.
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