Yves: Geithner's bogus "stress tests" for banksters helpless in the face of large-scale, Enron-style fraud
The word you want to keep in mind is "fraud." More great great stuff from Yves (who is to The Big Shitstorm as Jane was to L'Affaire Plame). She got an email interview with William Black, a former senior bank regulator, best known for nailing S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City.
[BLACK:] The regulators are overwhelmed because of personnel cuts (particularly heavy among their best, most experienced examiners that had worked banks that had engaged in sophisticated frauds. Buyouts were common, because more experienced examiners appear more expensive. This isn't true when you consider effectiveness and productivity, but management didn't care about that. Treat what I write after the colon as hearing from me at my most serious and thoughtful: it is vastly more difficult to examine a bank that is engaged in accounting control fraud. You can't rely on the bank's books and records*. It doesn't simply take more, far more, FTEs -- it takes examiners with experience, care, courage, and investigative instincts and abilities. Very few folks earning $60K are willing to get in the face of the CEO and CFO making $25 million annually and tell them that they are running a fraudulent bank and they are liars. FYI, this is one of the reasons why having "resident examiners" never works. The examiners don't even get to marry the natives. They get to worship God's annoited. Effective examination is good for you, but it is very unpleasant, ala a doctor's finger up your rectum. It requires total independence.
So, the examination force doesn't have remotely the numbers or the relevant experience and mindset to examine the largest banks with the greatest problems.
Yves here. Black is not using the fraud word lightly. He believe that we have Enron-level accounting fraud happening, now, in the financial services industry. And we have asked repeatedly, why has there been no investigation of fraud at Lehman? There was a $100 billion plus hole in its balance sheet, meaning a substantial negative net worth, when its financial statements presented a completely different picture.
Well, Lehmann is only two Madoff Units. That's not very big, these days. But the pennies pile up fast!
But how big is the Big Shitpile? How widespread is the fraud? One Paulson Unit? Two?
NOTE * It's just like the White House email. As things turn out, they will have "lost" the records, and all we can hope for is a backup.