Okay, confession time.
I personally have been involve--not within any applicable statute of limitations, I hasten to add--in the preparation of quarterly and annual earnings reports for publicly held financial institutions. As a matter of fact, one of those institutions is, today, buried deep inside the AIG mess, and for my services to that predecessor entity I am entitled to a small pension which, a recent communication from AIG assures me, is safe. I happen to believe that communication because the pension is so small that it's guaranteed by the PGBIC so, while the dollars in which it is paid may be worth far less when I receive them than anyone would have anticipated, I would assume that when the times comes, I will receive my pittance in what script is then legal tender.
Based on personal experience, I can say that, with the most honorable of motives and the best of intentions, accurately reflecting the financial results of any financial institution in a quarterly or even annual time frame is an exercise in subjective judgement, and, to put it mildly, reasonable people can differ. Based on what I'm seeing as a member of the great unwashed, I cannot tell whether the motives are honorable and the intentions above reproach with the financial institutions currently reporting their earnings, but these are stressful times, and such times test the mettle of all involved, a certain number of whom always fall short.
So I can understand how some of the the banks are actually reporting earnings. What I can't understand is why.
Citicorp reports earnings. But those earnings are dwarfed by an item that reflects the impairment of the value of its own debt (which is only impaired because of doubts about the enterprise itself). In other words, they are making money by going broke. Or so they claim. Wells Fargo is reporting record earnings at the same time that it is adding to its loan loss reserves in amounts that are virtually certain, in hindsight, to seem laughable. Goldmans Sachs is reporting earning, but its CFO is essentially lying to the public about the benefits Goldman received from payments on AIG CDS and the firm orphaned the month of December.
Why? These guys are setting themselves up for serious trouble down the road. The phrase 'buying time' comes to mind, but buying time only makes sense if you expectd something to change. And the way the political classes and their technocrats are going to remember this will be truly ugly sometime between the World Series and Thanksgiving. The first quarter will be remembered as when the banks reported the government bailout of AIG as their own profits.
That may be simplistic. But there is enough truth to it that it will stick. Fooled me once, shame on you. Fooled me twice, shame on me.
Schedule for Week of May 28, 2017
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