It has become obvious that the aim of the US Government is to save the banks deemed to big to fail at any cost, presumably because this is what it believes is best for the public. As a result, any claims that the banking industry is recovering are based on misinformation. And, we are missing perhaps the only opportunity we will ever have to strengthen our financial sector and correct what have become inherent weaknesses and mitigate future turbulence.
- Accounting rules have been rewritten to create false Q1’09 profits. For example, it is estimated that without accounting benefits, Citigroup would probably have posted a net loss of $2.5 billion in the quarter rather than the profit actually posted. Where greater transparency is being sought, the banking sector is effectively pushing-back. This after, it being widely held, that the stress tests conducted last month were rather lenient in the first place.
- Proposed and much needed regulatory reform in the banking sector and rating agencies is being compromised to the point of meaningless. The banks are spending millions to push back and protect their profit streams rather than focus on how to revamp their business models accordingly. One prominent, but by no means the only, example of the influence banks hold in protecting their profits is the failure of the Helping Families Save Their Homes Act. Not even the regulators themselves can get it together and agree on what needs to be done. And, even when credit card reform legislation was passed, additional fees and higher rates are threatened.
It seems that only the FDIC Chairman Sheila Bair is holding a line of accountability, because her agency stands to lose much. But, she is being challanged by her own Government peers.
This pattern is disturbing. Not least because Obama promised an end to the disproportinate influence of special interests, and I think that the banking industry lobby falls into this group, who obviously push their own agenda at the expense of what is best for the American public, now on the ropes. But, also because the true condition of the banking sector remains unknown.
