The Ignorance Is Willful
By Greg Hunter’s USAWatchdog.com
You might remember Dr. Michael Burry as the hedge fund manager who made hundreds of millions of dollars betting on the collapse of the housing market. You, also, might remember everyone from the mainstream media (MSM) to the Federal Reserve claimed nobody could have seen the 2008 financial collapse coming. How did Dr. Burry know a financial catastrophe was on the way while most financial experts and media were totally in the dark? This year’s commencement address at UCLA’s Department of Economics was given by Dr. Burry, and he says, “The ignorance is willful.” (Click here to see Dr. Burry’s June 20, 2012,UCLA address.)
“The ignorance is willful.” I think you can say the same thing about the ongoing banking crisis. Last Thursday, credit rating giant Moody’s downgraded the long-term credit ratings of 15 of the biggest North American and European banks. All but four were cut at least two notches, and these are some of the biggest banks in the world. RBC, JP Morgan, BNP Paribas, RBS and UBS are household names in Canada, U.S., France, UK and Switzerland. (Japan’s Numara and Australia’s Macquarie were downgraded earlier by Moody’s.) (Click here for a complete list of downgraded banks from Business Insider.) I can’t find a time when a major credit ratings company like Moody’s has downgraded this many major banks in so many parts of the world at the same time. Sure, critics of Moody’s will say they are way behind the curve, but the fact is the company has come out with bold and devastating bank downgrades when the world is being told it is in “recovery.” Please keep in mind, dozens of Italian and Spanish banks were, also, downgraded in the last few months by Moody’s.
The MSM greeted this enormously negative bank news with a yawn. USA Today, which touts itself as “The Nations Newspaper,” covered the story, last Friday, in the newspaper with less than 75 words! What kind of reporting is this? Both Goldman Sachs and JP Morgan were downgraded two notches by Moody’s, and both own more than 15 million shares (combined) of Gannett stock, which is the parent company of the newspaper. I am sure that had nothing to do with the very light coverage and analysis of this story. Bloomberg did a story that underplayed Moody’s downgrades titled “Bank Investors Dismiss Moody’s Cuts as Years Too Late.” The story ended by saying, “The reductions by Moody’s are “a mea culpa from 2007 and 2008,” said James Leonard, a credit analyst in Chicago at Morningstar Inc. (MORN) “The banks have gotten so much better in the last few years in terms of capital, yet their ratings keep going down. What does that tell you? That the ratings were so wrong before.” (Click here for the complete story.) As for the rest of the MSM, not a peep about this on any of the Sunday talk shows. It appears to me it is being played as no big deal.
This is the same treatment the financial press gives to what I call “government sanctioned accounting fraud” that the banks use to value underwater assets on their books such as real estate and mortgage-backed securities. The Financial Accounting Standards Board (FASB) changed the rules in 2009, and the banks can value these assets at whatever they think they will be worth at some fictional date in the future. Instead of “mark to market” accounting where assets are valued at what they will sell for today (this is how the IRS does it), you have “mark to fantasy” accounting where you value the assets at what you hope to get for them in the future. This is an insolvency problem so big that FASB had to change the accounting rules to make people think some banks are still solvent.
The same kind of accounting rule changes have taken place in Europe, where banks can “mark to fantasy” sovereign debt. It is not only the countries going broke, but the banks that hold sour debt that are insolvent. It appears things there are a bit more desperate and dire because, last week, The Guardian UK reported, “Mario Monti: we have a week to save the Eurozone . . . Italy’s prime minister . . . has warned of the apocalyptic consequences of failure at next week’s summit of EU leaders, outlining a potential death spiral that could threaten the political and economic future of Europe.” (Click here for the complete story.) What kind of financial management is this where you are down to a single week to fill an enormous financial black hole? Mr. Monti is an unelected banker, and I am sure his main concern is the survival of key European banks and not the well-being of the people. This is all about preserving the status quo and the power of the banks.
I have repeatedly said the global financial crisis is, in reality, a bank solvency crisis. The bank credit downgrades by Moody’s are another signpost on the road to perdition. Things are clearly not getting better, no matter how much the MSM underplays the crisis. The “nobody saw this coming” excuse will not work the next time there is a financial implosion, and there will be a next time. “The ignorance is willful.”