Thanks to Cleo for catching this article at the Telegraph. The Headline is that an influential accounting watchdog has warned that UK banking accounting rules are “fatally flawed”.
In a letter sent to the two global accounting standards bodies and the Bank of International Settlement (The BIS – the bankers bank) the author says there are “fatal” and “dangerous” flaws in how UK and Irish Banks present their accounts. Flaws he describes and “difficult to overstate” and which lead to banks giving false assurances.
All of which coming from an accountant who as a group are not known for the hyperbole, is strong stuff. But the two quotes which catch me eye are these.
He (The author of the report, Mr Bush) said the system produced figures that hid instability in banks, so that directors and regulators of the banks could look at the audited figures and conclude that banks were not just solvent but had excess cash.
I would like to offer a slight re-write of this just to suggest a slightly different view of events.
The system allowed the production of figures in order to hide instability in banks, so that directors and regulators of the banks could show the audited figures to others so they would be more likely to conclude were not just solvent but had excess cash.
You may think this wildly conspiratorial. And it may be. But the alternative is that no one suspected a thing. The fact that no one ever did any due diligence was nothing more than forgetfulness and NOT because they didn’t want to be the one to ‘discover’ what they all knew was there. to my mind it doesn’t matter in the end which is true. They are equally damning. I suspect both played a part.
But it is this quote that really does it for me.
As for banks in the lead-up to the financial crisis: “They did not have the capital that they presented, and they were not going concerns. The true situation was that business models were loss-making and actually consuming capita
Two things about this. First, there it is in black and white from an insider and accountant to boot, “They did not have the capital..they were not going concerns.” They were INSOLVENT.
From the first day of this bank crisis the absolute article of faith of ALL the experts, bankers, politicians and financial journalists has been that this was a crisis of Liquidity. At the Guardian I would read article after article by Larry Elliot and the others that this was a ‘liquidity crisis’, ‘liquidity’ was the answer and the banks were ‘solvent’. How many of us argued this was a crisis not of liquidity but of solvency and were told we were just ill-informed?
The second stark thing this quote says is that the bank’s business model was loss-making. This would be the business model the banks and shadow baking system IS STILL using today. It is also the business model we are being forced into sovereign bankruptcy trying to resurrect.
To summarize, the banks were insolvent when the crisis started and still are. They were lying then, (inadvertently or not matters little apart from length of gaol sentence) and still are today. Our regulators colluded in either stupidity or malfeasance, take your pick, and still are today. And from this moment on, all the bankers, regulators and politicians who still insist the banks are fine, just suffering a little local liquidity problem, but are definitely absolutely no question about it solvent, are lying and doing so ON PURPOSE, to screw you.