Tax & Financial Consulting Services
Big bank profits are bogus! Massive public deception!
Hotep G&G Readers,
A big bank CEO on a mission to deceive the public doesn’t have to tell outright lies. He can con people just as easily by using “perfectly legal” tricks, shams, and accounting shigidy.
First, I’ll give you the big-picture facts. Then, I’ll show you how big U.S. banks are painting lipstick on some of the fattest pigs ever raised.
Six of America’s Largest Banks at Risk of Failure
First, look at the megabanks: The authorities SAY that all of the 14 largest banks have earned a “passing” grade in their just-completed “stress tests.” But just six months ago, the authorities swore that, without a massive injection of taxpayer funds, those same banks would suffer a fatal meltdown.
Was the bad-debt disease magically cured? Did the economy miraculously turn around? Not quite. In fact, there is an overwhelming amount of evidence that the condition of the nation’s banks has deteriorated massively since then.
How can our trusted authorities be so blatantly deceptive and still keep their jobs? Perhaps you should ask Fed Chairman Ben Bernanke. Not long ago, for example, he declared that the total losses from the debt crisis would not exceed $100 billion, while conveying the hope that most of those losses could be soon written off. Also around that time, the International Monetary Fund (IMF) estimated the losses would be $1 trillion, with only a small percentage written off.
The IMF’s latest estimate: $4 trillion in losses, with only one-third of those written off so far. Bernanke’s error factor: He was 4,000 percent off the mark, in a world where 50 percent errors can be lethal.
Meanwhile, based on fourth quarter Fed data, we find that, among the nation’s megabanks, six are at risk of failure in our opinion (seven if you count Wachovia and Wells Fargo as separate institutions).
JPMorgan Chase is the nation’s largest, with $1.7 trillion in assets in its primary banking unit. It’s massively exposed to defaults by its trading partners in derivatives — to the tune of 382 percent (almost four times) its risk-based capital. Plus, since it holds HALF of ALL the derivatives in the U.S. banking industry, JPMorgan is at ground zero in the debt crisis.
Citibank is the nation’s third largest, with assets of $1.2 trillion in its main banking unit. Its total credit exposure to derivatives is a bit lower than Morgan’s, at 278 percent, but still extremely high. Plus, it has other troubles, especially the surging default rates in its sprawling global portfolio of credit cards and other consumer loans.
Wells Fargo and Wachovia now make up the nation’s fourth largest bank with combined assets of $1.17 trillion. But in the fourth quarter, they still reported separately, which is illuminating: Even without Wachovia’s troubled assets, TheStreet.com Ratings has downgraded Wells Fargo to a D+. Wachovia, meanwhile, got a D. This tells you that Wells Fargo wasn’t exactly the best merger partner, unless you believe in some bizarre math wherein adding two negatives somehow gives you a positive result.
SunTrust, with $185 billion in assets, is getting hit hard by the collapse in the commercial real estate. Its Financial Strength Rating is D+.
HSBC Bank USA has massive credit exposure to derivatives that’s even greater than Morgan’s: 550 percent of risk-based capital. We’re not looking at its larger foreign operations. But the U.S. numbers are ugly enough, meriting a rating of D+.
Goldman Sachs, which reported for the first time as a commercial bank in the fourth quarter, seems to be taking the biggest risks of all in derivatives. Its total credit exposure is 1,056 percent of capital. Bottom line: It debuts as a bank with a rating of D, on par with Wachovia.
Regional banks: Banking regulators have been largely mute regarding major regional banks. But several are also at risk of failure, including Compass Bank (Alabama), Fifth Third (Michigan), Huntington (Ohio), and E*Trade Bank (Virginia). Primary reason: Massive losses in commercial real estate loans.
Smaller banks: On its “Problem List,” the FDIC reports only 252 institutions with assets of $159 billion. In contrast, our list of at-risk institutions includes 1,816 banks and thrifts with $4.67 trillion in assets. That’s seven times the number of institutions and 29 times more assets at risk than the FDIC admits.
What Explains the Huge Gap Between Official Declarations and Our Analysis?
The primary difference is that the regulators have an agenda: Instead of protecting the people from bank failures, they’re trying harder than ever to protect failed banks from the people.
They have forever hidden the names of the banks on the FDIC’s “Problem List,” making it almost impossible for average consumers to get prior warnings of troubles.
They have never disclosed their own official ratings of the banks — the CAMELS ratings — making it difficult for the public to find safe institutions they can trust.
They have religiously underestimated — or understated — the depth and breadth of the debt crisis.
And as I explained a moment ago, they have rigged their recent stress tests to give passing grades to all of the nation’s 14 largest banks, sending the false signal that even the most dangerous among them are somehow “safe.”
Legal Cover-Ups, In the Big Bank’s “Glowing” First-Quarter Earnings Reports
Wall Street is aglow with the latest “better-than-expected” earnings reports by major banks. But take one look below the surface, and you’ll see three of the most egregious accounting gimmicks in recent history.
Scam #1. Toxic asset cover-up. In their infinite wisdom, global banking regulators have now agreed to let banks cover up their toxic assets by booking them at fluffy-high values, bearing little resemblance to actual market prices. Like magic, the bad assets are suddenly worth more, as hundreds of billions in losses are defined away.
Scam #2. Reserve smoke screen. Every quarter, banks are required to estimate their losses and decide how much to set aside in loss reserves. If they deliberately guess too much in one quarter and too little in the next, they can shove all their bad earnings into earlier P&Ls and make future P&Ls look rosy by comparison.
Scam #3. The great debt sham. Consider this scenario: A financially distressed real estate developer owes the bank $4 million. His revenues have plunged. He’s lost a fortune in his properties. And he’s on the brink of bankruptcy.
Therefore, in the secondary market, traders recognize that loans like his are worth, say, only half their face value, or about $2 million. So far, a very common situation, right?
But now imagine this: He walks into the bank one morning and claims that he really owes only $2 million. Why? Because, in theory, he says, he could buy back his own loan for that price, thereby reducing his debt in half.
In practice, of course, that’s a pipedream. If he actually had the cash to buy back his own loans on the market, then he wouldn’t be financially distressed in the first place. And if he weren’t financially distressed, his loans wouldn’t be selling on the market for half price.
The reality is that he can’t buy back his own debt and never will. And even if he could someday, he will still be on the hook for the full $4 million unless and until he files for bankruptcy and the bankruptcy judge decides otherwise.
That’s why the government would never let real estate developers — or hardly anyone else, for that matter — mark down the debts on their books and still stay in business. But guess what? The government lets banks do precisely that!
It’s the ultimate double standard: The banks get away with inflating their toxic assets. But at the same time, they’re allowed to mark to market their own debts, which happen to be trading at huge discounts on the open market precisely because of their toxic assets.
Accountants call it a “credit value adjustment.” I call it cheating.
Finding all of this hard to believe? Then consider this:
Bottom line: Rather than the private-public partnership the government has called for to address the nation’s banking woes, we see little more than private-public collusion to hide the truth from the public, paper over the problems and, ultimately, sink the banks into an even deeper hole.
Step 1. Get away from risky stocks. Use the recent stock market rally as a selling opportunity — your second chance to get out of danger before it’s too late.
Step 2. Get out of sinking real estate. If there’s a temporary improvement in the market, grab it to sell the properties you’ve been wanting to sell all along.
Step 3. Raise as much cash as you possibly can — not only by selling stocks and real estate, but also by cutting expenses and selling other things you own.
Step 4. Make sure you keep your cash in one of the safe banks on the list in my free bank report I'll send you if you become a GGIS paid newsletter subscriber. Or better yet, transfer your money into US Postal Money Orders (they are backed by Gold). They’re safer than any bank money order (which expires) why...because it's backed by nothing but lies and promises, don't believe me. Take out a dollar bill...what does it say? Promissory note...a promise to pay. Question...pay you with what?
Step 5. Diversify your money out of US dollars. Purchase foreign currrencies to hedge against the sinking dollar (more on that in the future). Also, see G&G's 10 pip a day account as I show those interested in how to invest in the FOREX market by getting 10% a day on your investment with the goal of generating a $1000 a day within 13 months. Oh...and this was with an initial $1000 investment. (More to follow on this in future e-mails.
Step 6. Purchase precious metals specifically Gold & Silver...need I say more? I've been harping on this for over a year now.
For more details on how to start purchasing Gold & Silver right away, click the link below to start purchasing "real" money.
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Tax & Financial Consultant, RFC
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"What we learn from history is that people don't learn from history."
LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. Also, please note that due to our commercial relationship with Publc Gold, G&G Associates may receive compensation from a membership purchased at www.publicgold.com/gngpreciousmetals.