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Bank Sector Positive Earnings Reports- It’s Time to Face the Facts, Part 1

Companies / Banking Stocks Apr 23, 2009 - 06:35 AM GMT

By: Mike_Stathis


Best Financial Markets Analysis ArticleFor anyone who believes any positive earnings reports from the banks, you probably also believe there will be a real recovery in the economy. These “earnings” are even less credible than those reported by the banks during the height of their Ponzi scheme in 2007. Earnings? From the banks? It’s laughable. Let me now state what I consider to be facts related to the bigger picture of this economic fiasco.

Fact #1. All Major Banks Are Insolvent.
This has been true now for over a year. It remains true despite the Treasury and Fed already having pumped in over $13 trillion in the form of loans or guarantees into the financial system; just over the past twelve months alone. But this is still insufficient. Several trillions more will be needed, and much of this will be lost forever.

Even Treasury Secretary Geithner (the Federal Reserve’s inside man) insists the banks need an additional $2 trillion. So what’s the message he’s sending? He’s saying the banks are insolvent. But of course he isn’t stating this publicly. He’s afraid to state the obvious because he, like so many others in Washington have been fed the myth that the current economic blowout is mainly due to a lack of confidence. So he doesn’t want to make people panic by telling them the banks are insolvent.

Geithner has continued the strategy initiated by Paulson; using scare tactics and lies to get what he wants. It’s been the most blatant case of crony capitalism in world history. And they have no intention of stopping this fraud anytime soon. Why would they? They’re getting away with it so easily.

So who fed Geithner this bull? My money is on Larry Summers. After all, you need to understand that Geithner isn’t so bright relative to others in his field. And he certainly doesn’t have a track record of success. If you think he does, you obviously haven’t examined his career in depth. Like so many others who end up serving in the White House, Geithner climbed the ladder for doing the right things for the wrong people.

Just because the media calls him “sharp” doesn’t mean it’s true. In fact, if the media keeps harping on something, that alone should tip you off that they’re dead wrong. Case and point - Do you remember how the media labeled Alan Greenspan as a genius for so many years? The media does this all the time – labeling failures and morons as geniuses in order to preserve its working relationship with Washington. That’s why they always refer to Larry Summers as “brilliant” without making mention of his many disastrous failures. Remember that virtually all of the media in the United States, from print to radio and televised, is controlled by seven men. So you can imagine how easy it is for someone in the White House to pick up the phone and make few calls in order to influence what the people are told. 

While confidence is certainly a part of the mix, it is by no means anywhere near as big as the root of the problem. In fact, consumer fear has been a positive because it’s caused most to start saving and stop spending on things they don’t need. As far as Washington is concerned, this is bad news because it threatens to destroy America’s Ponzi scheme economy.

If you believe Geithner, then you probably believe the real estate infomercials proclaiming anyone, even the biggest dunce can become a millionaire by flipping homes. But even Geithner knows that $2 trillion falls way short of saving the banks. It’s part of the stepwise strategy pioneered by Paulson; asking for more gradually, while using a carefully selected mix of scare tactics and optimism.

If you think $2 trillion will solve the problem you’ve forgotten about the 30-40:1 leverage still held by these banks. Have you forgotten about the CDS market? Have you forgotten about the monolines? Have you forgotten about the windfall of sub-prime and Alt-A loan resets that will be triggered in 2010 and 2011?  I haven’t.

Despite the media’s abandonment from these issues, I can assure you they are still very big problems. The derivatives exposure of the top five U.S. banks is beyond scary when you look at the official data from the Office of the Comptroller of Currency. And when you consider the fact that these numbers are reported on a voluntary basis, the possibilities for further disaster become much more frightening.

Even the latest discussion by Geithner and Summers to convert the TARP loans to common stock is only delaying the inevitable; a complete nationalization of the banks.  The longer they remain in denial, the more money they’ll keep tossing into the bottomless pit; and the worse things will get. Nationalization is the only possible remedy. Washington is going to learn this the hard way; at our expense.

While Obama is jet setting around the world for photo-ops or hiting the late night TV circuit, his economic advisers remain committed to protecting the interests of their banking buddies at the expense of Americans. This sends the message that Washington cares more about Wall Street than Main Street. And it’s pushing morale down further, as millions wonder what’s become of their nation.   

Fact #2. We Are Witnessing the Largest Theft in World History.
The U.S. banking cartel (GS, BAC, C and JPM) is engaging in the biggest scam in world history by covering up toxic assets and inflating the valuation of this junk. That is specifically why Obama’s “Dream Team” consists of many of the same individuals responsible for the world’s biggest Ponzi scheme.

First we have Tim Geithner, noted tax cheat and Paulson’s right-hand man during the Bush administration. As a reward for his loyalty to Wall Street, Geithner was promoted to become Larry Summers’ right-hand man. Recall that Geithner was not only responsible for the Bear Stearns heist, he was also the principal architect of the TARP. As I warned last year, the most detrimental effect of TARP wouldn’t be the $770 billion check of misappropriated funds, but the fact that it would commence the sign-off of a blank check for the financial industry. This is exactly what has occurred. 

Second, the guy who is really making all of the economic decisions - Larry Summers - is arguably the single most responsible individual accounting for the severity of the economic fallout. While Alan Greenspan fueled the engine of financial destruction, Summers designed it. Summers not only pushed for the repeal of the Glass-Steagal (along with Rubin and Gramm), but he was the principal force behind legislation that made it impossible to regulate the CDS market.

And of course Geithner is a protégé of both Summers and Rubin. But we must also remember that Geithner was the President of the New York Federal Reserve Bank. As I have stated many times in the past, the banking cartel owns the Federal Reserve. That is specifically why these banks have been given a blank check to buy up smaller banks; banks which in most cases are no more insolvent than the members of this dangerous cartel.

So hopefully you now understand why Geithner was appointed Treasury Secretary, despite being guilty (although given immunity) of blatant tax fraud. He is naïve. He is a “yes man” who takes orders from Summers. And he’s proven that he’ll act in the best interests of the banking cartel. Why would you expect anything else from Geithner? As former president of the New York Fed, he’s an insider from the cartel. Thus, with Geithner at the helm of the U.S. Treasury, the interests of the banking cartel are well-protected. The problem is that Summers, Geithner and the rest of the mob ultimately won’t be able to save the banks without destroying America.

In the meantime, the FDIC and OTC can’t touch the banking cartel despite their insolvency because the cartel owns and controls the Federal Reserve and U.S. Treasury.  Despite the claims made that the FDIC is an independent insurance organization for the banks, the fact is that it is part of the U.S Treasury. That is specifically why they are drawing from the reserves of the Treasury; from your tax dollars. 

Recent changes to mark-to-market accounting will further aid in the illusion of bank earnings. But you cannot hide forever. And at some point, things are really going to get ugly when reality surfaces. As I said several months ago, if you think this is bad “you ain’t seen nuthin yet.”

Several generations of taxpayers are already on the hook for trillions of dollars handed out to these banks because Obama and his pro-Wall Street staff have convinced the public that they know what they’re doing. Sure they do. They’re pulling off the biggest heist of all time. 

Fact #3. There is NO Escaping the Depression.
All throughout this scam, Washington’s economic “gurus’ have used scare tactics to justify the passage of blank checks to the banks. And yes, they’ll keep spending until they get what they want; signs of a recovery. They won’t care that it will be a phantom recovery. It’s a political maneuver aimed at gaining momentum for Obama’s second term election.

They will keep lying and acting recklessly, but they won’t be able to avert a depression. America’s next Great Depression is already here. If you don’t realize this then you simply have no idea what’s going on. If that’s the case, you probably rely on the mainstream media for your information.

In fact, the arcane and incompetent approaches used by Washington and the Fed are going to make the depression much worse and last much longer. Supplying the banks with capital we don’t have is like stabbing an open wound and claiming you will prevent the bleeding. While the initial effect may appear to be improvement, it’s only going to cause more bleeding. Meanwhile, the banks continue to hoard bailout capital, lobby for more bailout money and increase rates for credit cards, ATM fees and other malicious activities aimed at screwing consumers. It’s beyond astounding. Just how much abuse can you take?

The real solution is to purge the system of the trash and start anew. The Federal Reserve does not want to take this approach. And Washington follows their lead. They didn’t want to take it after the dotcom collapse, and that’s why we’re in this mess. Consider the consequences of trying to mask the real problems. There’s going to be a much bigger catastrophe down the road. I’ll guarantee it. It may manifest differently, but the impact will be more devastating to consumers either in severity or duration; perhaps both. One of the more obvious consequences is massive inflation, but I would expect other problems to surface, most likely capriciously.

Only a fool would actually think you could print out trillions of dollars and erase the massive global apocalypse that has occurred. Sorry, but that simply doesn’t obey any laws in the universe I live in. There are no easy fixes. Denial and deception will prove to be Washington’s biggest mistakes. Our leaders are showing they’re incapable of leadership.  Of course, this is a trend that has not changed for over three decades. 

The so-called experts the media goes to for insight have continued to deny the fact that we’ve already entered the early stages of a depression. This depressive period is likely to be far worse than the first one. But Washington’s hacks continue to hide the truth by making ridiculous comparisons lacking merit, while emphasizing bogus economic data. And the media goes along with this deception by not allowing credible experts to challenge the views of these hacks. In the end, the media dictates what your perception of reality is, thinking they can alter reality. This is why you must ban the media just as they have banned me.

Rather than use real data, they quote data manipulated by Washington. Rather than make objective and rational conclusions, the media plasters its hand-selected group of “experts” who use simpleton arguments to explain why we won’t have a depression. As the records show, they’ve all been wrong from the beginning. All they’ve done is denied and downplayed everything, while issuing countless revisions week after week, month after month. This is not forecasting; it’s a method used to hide the truth. Most likely, this deception and denial has already destroyed a good portion of your livelihood.

All of the statements made by Bernanke, Paulson, Geithner and the economists of the round table have one thing in common. They’ve all been grossly wrong. According to them, problems in real estate “would not be severe” and “would not spill over to the economy.” According to them, the banks were “fine” and there would be “no bailouts.” The only thing they’ve shown is that they cannot and should not be trusted. And they most certainly cannot be relied upon for real solutions.

Meanwhile, the media continues to shut out the real experts who have no agendas other than to preserve this nation. The evidence is overwhelming that the mainstream media is committed to covering up the farce orchestrated by the Federal Reserve.

This will not be a deflationary depression, as the so-called experts require as a mandatory (and ridiculous) condition for a depression. It will be an inflationary depression, compliments of Washington and the Federal Reserve. In reality, inflation is still fairly high and will continue to rise. Don’t even bother to listen to the CPI and PPI data.

As I first detailed in my 2006 book, this data is fudged, as is GDP and employment data. The fact is that the only inflation that really matters is rising; inflation for basic necessities like food, energy and healthcare. And when this bailout bonanza catches up with the dollar, inflation is going to rival the early ‘80s; perhaps even surpass it. It is likely that Washington will then intentionally escalate inflation as a way to help pay off what will be an insurmountable national debt.

Even with Washington’s futile attempts to mask America’s depression, until free trade is adequately restructured, job quality will continue to decline indefinitely. Even with the best of scenarios, I regret to say that America will never be the same. I’ll guarantee it. Washington had a tremendous opportunity to turn the tide and they’ve failed miserably. And the media has helped them get away with it just like they helped Wall Street destroy your investments.

Fact #4. There Will Be No Real Recovery for 90% of Americans.
Washington officials, the Fed, and pundits keep referring to a recovery. The fact is that there will be no real recovery. Sure, there will ultimately be a relative improvement from the depressionary period we are facing.  However, this will be more of a cyclical artifact based exclusively on the wasteful spending of taxpayer dollars. It will be another illusion orchestrated by the Fed and their subordinate, the U.S. Treasury.

And yes, the market will advance as a result of this inflationary economic policy. However, it will be short-lived. Thereafter, the market is likely to fall below 6000 when reality sets in; perhaps even below 5000. The only recovery will be for those who stand to benefit from this epic fraud; the wealthy. The game is being played the way it always has, just on a much larger scale this time.

So if you are counting on a real economic recovery, don’t get your hopes up; at least not for America; not unless you are very wealthy. The wealth and income lost by the working class have been and will continue to be transferred to America’s wealthy and developing nations like China and Brazil – all compliments of Washington’s free trade policies. As a consequence, these nations will mount a real recovery.

The best thing you can do to ensure a real recovery for America is to demand the problems are truly remedied. In part, this means free trade must be restructured so that all participants play by the same rules of commerce. This will stop the hemorrhaging of jobs from America.

But there are many other problems that must be dealt with such as a solution to the healthcare crisis. Those responsible for massive fraud and abuse of political power must be imprisoned for life terms, and lobbying activities must be completely banned.  The list is too long to mention here.

The sooner you accept the fact that America’s next Great Depression is here, the sooner you will be able to prepare for the difficult and permanent readjustment that lies ahead.  You need to change your mentality as a consumer and employee. You need to become very frugal and stay that way. No more buying the latest gadgets. No more buying a new car every four years. You need to start acting like you don’t have job security because you don’t. You need to prepare for massive inflation because it’s on its way.

Finally, I urge you to minimize your dependence on banks; not just now, but forever. While it may cause an inconvenience, it will be well worth it. Banks are the most insidious enemy of American consumers. I don’t think I need to convince you of that. This reminder should do.

Here’s a glimpse at Part 2 of this article:

Fact #5. Most of the Lost Jobs Will Not Return.

Fact #6. The Media is the Most Dangerous Force in America.

Fact #7. Washington Continues to Hide Economic Data.

Fact #8. Most of the “Experts” Are Absolutely Clueless.

Fact #9. There is Much More Risk than Opportunity. 

Part 2 can be found on

I’ll be giving an interview tonight (Thursday April 23rd) at 11PM EST on a radio station in Colorado - the Scooter McGee Show, which can be heard live via streaming audio from the station's website  Take advantage of this if you can because it’s one of the rare times you’ll get to hear me live since the media has me on their blacklist. You can call in and ask questions as well.

By Mike Stathis

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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Books Published
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Disclaimer: All investment commentaries and recommendations herein have been presented for educational purposes, are generic and not meant to serve as individual investment advice, and should not be taken as such. Readers should consult their registered financial representative to determine the suitability of all investment strategies discussed. Without a consideration of each investor's financial profile. The investment strategies herein do not apply to 401(k), IRA or any other tax-deferred retirement accounts due to the limitations of these investment vehicles.

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