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December 27, 2019 | Financial Shell Game Continues in Full Vigor

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Last month, eleven years after the events, a judge in Milan sentenced 13 former executives of three major banks to multi-year prison terms for actions they took to hide trading losses at their institutions in 2008.

This is significant since outside of Ireland and Iceland, jail time for the directing minds of financial crimes at large institutions has been virtually non-existent in the last 20 years.

As the banks continually lobby for and achieve weaker regulation and laxer oversight, the accounting tricks and deceits prevalent ten years ago remain rampant today.  Some common activities such as ‘capital-relief trades’, ‘off-book accounting’ and share buybacks, are not expressly illegal but should be caught under broad criminal provisions against market manipulation and financial fraud.  Recent strains in the overnight lending market are just one hint of the predictable problems under the surface.

For more insight see Bankers are Playing with Fire Once Again and Wall Street Magic Tricks Make Banks Look Safer Than They Are:

For example, banks can pay someone to take their risk away for them. “Capital-relief trades” have in effect moved hundreds of billions of dollars off banks’ balance sheets by making it look as if loans the banks have made don’t exist. These trades essentially take the form of insurance policies guaranteed by counterparties that include hedge funds. It’s good to have insurance. The problem is, in a meltdown, those counterparties would need to be able to make good on their obligations for the trade to hold up…

BOTTOM LINE – Financial companies around the world are still using accounting maneuvers that mask the true state of the industry, as they did before the financial crisis. 

More personal prosecution and punishment of directing minds will be essential to help curb this destructive behaviour.  But this is only likely to come after losses are widespread and government bailouts of “too big to fail” institutions the go-t0 once more.

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December 27th, 2019

Posted In: Juggling Dynamite

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