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Waiting for Godot


WAITING FOR GODOT

Arshad M. Khan

AT least a dozen or more of the top banks are bankrupt.  Yet they are busy declaring record profits.  

How is that possible?  It’s quite simple.  In December 2008, they pushed Congress to put the screws

on the accountants’ rule-making body the Financial Accounting Standards Board (FASB) to change

the mark-to-market rule governing the banks investments in securities.  Instead of reality-based

accounting where the securities are valued at their market price, we are now in la-la-land

accounting.  The securities remain on the balance sheets of these banks at purchase price, the

losses to be recognized only when they are sold.

Like waiting for Godot, these banks are waiting for their loan bundles which include loans based on

subprime mortgages to rise again in price — an unlikely prospect since many of these mortgages

are in default.  The banks will be waiting and waiting and waiting …. .  In the meantime, they keep

declaring record profits without increasing lending because these funds are used to shore up

shaky balance sheets.

All of this comes to mind because the President has recently been touting the benefits of the

stimulus package in saving two million jobs.  To be fair, the original problem is not his doing.  Yet

his response, a sort of patch-work, keep-it-going approach has increased the fragility of the

economy.  Keeping bankers and their captive economists as advisors blinkered the course of

action.  A clean breast of it by the banks and a FDIC take over would have purged the system.  But

that’s a tall order when all the significant legislative committees are lathered in financial industry

funds.  So we got little taps on the wrists and a few screams at executive pay, and business is back

as usual while we wait for the other shoe (or perhaps an anvil on the head this time) to drop.

In the eighties after the deregulation of the Savings and Loan industry, many of these S&Ls

invested in riskier high-interest projects and rewarded their senior ranks handsomely — for a time.  

Eventually, the law of averages caught up with them and they went bust leaving the taxpayer to

foot the $387 billion bill.  There were over a thousand criminal prosecutions then and numerous

convictions and jail terms.  This time the subprime frauds have been obvious, the banks and the

rating agencies complicit, the losses in the trillions and not a single prosecution.  Not one! Zilch!  

Zippo!  How times have changed?

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