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How the Banks Are Cooking the Books

Hal Turner

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A number of you have asked me how it is that I could claim the bank stress tests reveal 16 of the top 19 banks in the USA are "technically insolvent" when banks are reporting "record profits" this week? They're cooking the books!

Want proof? Let's use the numbers from Wells Fargo Corporation (WFC) as an example.

This week, WFC reported their financial condition publicly with “master of the universe” bravado and bluster about their superior banking management. They claim a 1st Qtr profit of about $3 Billion. Remember that number: $3 billion.

I suppose when you are down on your chips and running a bluff, you have to give out the right sort of attitude and moral high ground to make it work, to hide the fact that you are just crooking the books like everyone else.

That smoke you feel being blown up your backside is nothing more than legalized accounting fraud being presented to the world in the form of Wells Fargo’s 1st Qtr 2009 earnings release.

As suspected, the infamous “record $3 billion profits” pre-announced 2 weeks ago by Wells Fargo are nothing more than a result of our Wall Street-financed Government, including our President, forcing the FASB to change the way big banks account for toxic assets.

From WFC’s earnings release :

“The net unrealized loss on securities available for sale declined to $4.7 billion at March 31, 2009, from $9.9 billion at December 31, 2008. Approximately $850 million of the improvement was due to declining interest rates and narrower credit spreads. The remainder was due to the early adoption of FAS FSP 157-4, which clarified the use of trading prices in determining fair value for distressed securities in illiquid markets, thus moderating the need to use excessively distressed prices in valuing these securities in illiquid markets as we had done in prior periods”

Essentially, what WFC did was post $5.2 billion mark-to-fantasy gains, which were then added into its revenues, by reversing out previous charges expensed against their securities and loans held for sale. Without this $5.2 Billion "gain," Wells Fargo loses . . . . . . $2.2 billion.

In looking at WFC’s balance sheet, I see that their “securities held for sale” miraculously jumped to 27% of their net loans vs. being only 21% of loans at the end 2008. This is obviously WFC taking full advantage of the new mark-to-fantasy accounting standard, piling as much toxic waste into this category as they can and marking the price levels up substantially. It would be really interesting to see what kind of worthless crap was conveniently moved into this category but we in the public aren't allowed to see.

That is how the banks are reporting "profits." Using these types of accounting gimmicks is how they intend to report the banks have "passed" the "stress test. It's all gimmickry.

My report, published last Sunday about the bank stress tests and how 16 of America's top 19 banks are "technically insolvent" is proving to be absolutely on-target . . . . . using real accounting methods as opposed to the new fantasy methods.

Vindication is such a sweet thing!