for "burning the midnight oil" and illuminating our world with the information gained from your "hard day’s night" efforts – you rock!
Ms. Huffington’s article (posted on The Huffington Post), "My Late Night Visits from the Ghosts of Financial Outrages Past, Present and Future," points out the guileful, ad hoc rules that govern our banks.; arcane banking rules which can be as misleading as money is fungible. The ability to change these murky, banking rules in the middle of the game aid and abet our current banking system’s flim-flammery.
Across the jump, this diary will highlight Ms. Huffington’s article and augment the ideas described in her article with a few, additional thoughts on banks, regulation, pension funds and rating agencies.
Ms. Huffington’s article begins by focusing on the quarterly "profits" that several of the mega-banks announced via their press releases. The following passage from Arianna’s piece outlines the legerdemain that Goldman Sachs could have used to report a quarterly profit.
Goldman Sachs became profitable again -- by pioneering a new round of accounting tricks. In its report on the first quarter of 2009, Goldman claimed a profit of $1.8 billion. How did the banking giant do it? By magically making December disappear. Goldman switched from being an investment bank to a traditional bank holding company. As part of that, it had to change its fiscal year -- it used to end in November, now it ends at the close of the calendar year. That meant Goldman's latest report didn't include December -- a month in which the bank lost more than $1 billion. As reported by Floyd Norris, this billion-dollar tidbit was not mentioned in the text of the company's press release about its "profitable" first quarter -- it was buried deep inside the tables that accompanied the release. Arianna Huffington
The above excerpt from Ms. Huffington’s article is very enlightening. The article highlights the issue that Goldman Sach’s earnings seem to be short on "quality"; meaning that the earnings are possibly based on a one-time, special situation, thus may not be of a repeatable or enduring nature. Additionally, suspect earnings are usually derived from other than the company’s core operations.
To ascertain the true nature of Goldman Sach’s earnings (and other banks), an investor or interested person will need to study the company’s 10Q reports. You can obtain copies of these reports on the U.S. Securities and Exchange Commission’s web site. Additionally, you may wish to look at the reports that the banks provide to the Federal Reserve Bank.
Another matter raised by Ms. Huffington’s article involves the asymmetric aspects of investment information and why regulation of public companies is important. For instance, the examination of the published SEC-required reports (e.g., 10K, 10Q, etc) can only be the beginning of an examination of company’s viability. A person needs to "kick the tires" and "look under the rocks" of a company to truly ascertain its quality. The inability for everyone to visit a company and examine its operations up close necessitates the need for effective regulation of public companies and their financial reports.
Additionally, rating agencies, mutual funds, pension funds, and other like providers of investing advice and financial services must be effectively regulated. Exorbitant management fees, excessive transactions costs, and other service charges, if not well regulated, facilitate the abuse of unsuspecting and unsophisticated people who invest in 401Ks, 401Bs, individual retirement accounts and similar investing vehicles.
Ms. Huffington’s article provides a look at the aforementioned issues of pension/retirement funds and costs in the following manner:
While it's shocking that it took pension fund managers this long to come to that conclusion [i.e., demanding a performance-based fee structure], it's even more shocking that they would have ever done otherwise -- especially considering that the pot of money they were giving to the Wall Street cowboys to gamble away represents the life savings of millions of people. Arianna Huffington
And in the following passage, Ms. Huffington emphasizes the problems of the rating agencies as well.
'Until the rating firms bite the bullet and develop forward-looking signals and methods,' says former credit-rating analyst, Ann Rutledge, 'it's going to be same old, same old, and their models can be gamed.'
After all, them's the rules. And Ben Bernanke is 'comfortable' with them.
I'm not. And you shouldn't be either. ______________ Arianna Huffington
I’m looking forward to Speaker Nancy Pelosi's ordered, congressional investigation of the causes of this current financial calamity.