Window dressing of balance sheet in AngloIrish Bank case

Lumpy Talbot

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There is pretty much a kind of fraudulence wrapped up in the core of banking in any case- right down to the very core of its existence. The only real audit of a bank's financial health is whether it can cope with demands from its customers for withdrawal of deposits- the 'run'.

If a bank cannot deal with demands caused by a 'run' on its deposits (and the vast majority of banks cannot) then the model is broken right there. So the very existence of banks depend on a fraudulent notion that they are safe and systemic in the first place.

Mervyn King, former Governer of the Bank of England wrote of some essential truths in a recent book on the banking model in recent years called 'The End of Alchemy' where he explained the sort of alchemy that is at the heart of fractional reserve financial systems and at the very core of banking.

A personal observation is that decades ago I was able to get a handle on some of the economic levers of the modern economy- the effect of interest rates. monetary policy and had an amateurish understanding of the sort of balance that occurs in an economy.

It all got a bit weird from the 1990s onwards and I have only had an understanding since that economics are now quite distorted far beyond the measure of any understanding and I suspect that is the case with qualified economists as well.

I suspect with banking practices and the ever increasing distortion of real economic indicators by the rise of the offshore economy, the distortions of currency markets, quantitative easing and helicopter propping up of an increasingly fantasia-like meddling around the world we now live in a sort of science-fictionesque economic environment where economic theories are increasingly useless.

I think it is a slow moving runaway train and have given up entirely on the attempt to understand economics- I see no reason to believe much if any of the published economic indicators any more and those that I do see could just as easily be fake.

I suspect we would be shocked even if we understood how much political manipulation economic statistics receive.

So I've stopped even trying to contemplate economics and fractional reserve banking in a fiat money system. One might as well be Canute staring at a rising tide in my opinion.

At this stage I don't think there are any dependable economic indicators which are clean enough to utilise as a starting point.

The auditing of banks is as fake as the structure of banking itself.
 


Lumpy Talbot

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Quite interesting to realise that pyramid schemes and banks rely on the same supposition- that they won't be exposed by a simultaneous call on assets they apparently manage for their customers.

Both are entirely dependent on what is realistically a model of a business continually operating in technical insolvency.

How does one propose to audit either a pyramid scheme or its close cousin the banking system?

The answer is 'with great care in ensuring that a run or call on assets is not sparked'. So much for auditry in either case.
 

WTTR

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Any independent authority, check and balances of a proper economic system is rendered completely useless in the EU

Quite interesting to realise that pyramid schemes and banks rely on the same supposition- that they won't be exposed by a simultaneous call on assets they apparently manage for their customers.

Both are entirely dependent on what is realistically a model of a business continually operating in technical insolvency.

How does one propose to audit either a pyramid scheme or its close cousin the banking system?

The answer is 'with great care in ensuring that a run or call on assets is not sparked'. So much for auditry in either case.
And when you have the ECB run as a political pawn at the mercy of a select bunch of politically connected investers, you get a system that is completely out of control.

The ECB and EU by its own rules (The Lisbon Treaty) is forbidden from coming to the rescue of a country's finances. But in the case of the Greeks which had investments from French and German banks, it came to the rescue by guaranteeing Greek Government Bonds. This avenue was taken so that the Greeks could raise money i.e. bail-out. This bail-out money then went to the German and French Banks.

The Greek State should have been allowed go burst; have its bonds discounted and French and German investors take a hit.

When the French and German banks were rescued, the ECB reversed its policy again and denied continued assistance to the Greek Banks. This was needed when the Governor of the Greek Central Bank said that if Syriza won the election that there would be a run on the Greek Banks. Of course this was a self fulfilling prophesy when Syriza won. A total of €40Bn was withdrawn by Greek citizens from their own banking system.

Now the Greeks have massively more loans than they have a hope of ever paying back. The ECB, the EU Constitution, the Creditors are putting the people of Greece under unnecessary and severe financial austerity.

Any independent authority that EU Institutions ever had is now highly compromised resulting in the whole apparatus, check and balances of a proper economic system rendered completely useless.

Might, not fairness and equity is the prevailing system of government throughout the European Union.
 

WTTR

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Nowotny: If a central bank has conviction, it cannot compromise

Nowotny who is also a member of the European Central Bank's governing council, also highlighted the need for central banks to be left to decide policy without interference.

"Both in good times and bad times, it is important to have an independent central bank. The whole monetary system has to be built on trust."

"And so to have this independence is a very important element of trust in the system," he said Thursday.
When you have a generation of politicians that do not understand this, the situation is hopeless.
 

ManUnited

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When you have a generation of politicians that do not understand this, the situation is hopeless.
As long as the central bankers understand that it doesn't matter what the politicians understand.
 

patslatt

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That would be the auditors from the larger practices. At the time, the turnover guideline for a company to require an audit was c.€1.25Mn. A small time auditor would have to audit the accounts of the local corner shop with the same diligence as would be required for an Aer Lingus audit.

This could only be adequately done at a loss making enterprise (the proprietor would not accept the associated fee). If a small time auditor choose not to go through the charade of pretending that ticking-off items off a computer package was sufficient, the audit license would be withdrawn from the practice.

The large auditing firms carried out audits on the banks 2004-10 that should have uncovered the disastrous potential toxic debt situation that Irish mortgage lending institutions were in. Anybody (dogs in the street) would have known this if any astute application of the matter between the ears was given to the prevailing mortgage madness and massive mortgages that our young people were taking-on.

However, I would have no doubt that in many cases, discrepancies were highlighted, indemnities sought from the FR etc before audits were signed off.

Our banks etc went burst with disastrous consequences for our economy. They had to be rescued.

The same big time Bnak auditors/accountants were subsequently given big say with the set-up of NAMA, and are still being given very lucrative commissions by the government. None of them lost their auditing license.

Another dimension of the sense of right and wrong has been added in these neo-liberal times to the separation of decisions of State/Business from those of religion; that is: the "above the law" might, that large companies (TBTF and large international auditors etc) are taking for themselves in the absence of politically strong religious based principles.

This is why, international movements like TTIP etc are so dangerous.
RELIGION

Principles are rarely practiced by people in power.
 

patslatt

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Shouldn't there be a limit on such practices, though? As has been pointed out, the scale here is impressive, esp. for us non-banking types, and it did create a highly misleading impression of the bank's balance sheet. What about people who invested in the bank after this event?

That was a great 2007 thread on Fingleton BTW - p.ie being useful.
SCALE OF WINDOW DRESSING
As pointed out in the OP, the scale in the case of UK banks in the 1980s recession was huge but it was concealed by opaque accounting.
 

patslatt

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There is pretty much a kind of fraudulence wrapped up in the core of banking in any case- right down to the very core of its existence. The only real audit of a bank's financial health is whether it can cope with demands from its customers for withdrawal of deposits- the 'run'.

If a bank cannot deal with demands caused by a 'run' on its deposits (and the vast majority of banks cannot) then the model is broken right there. So the very existence of banks depend on a fraudulent notion that they are safe and systemic in the first place.

Mervyn King, former Governer of the Bank of England wrote of some essential truths in a recent book on the banking model in recent years called 'The End of Alchemy' where he explained the sort of alchemy that is at the heart of fractional reserve financial systems and at the very core of banking.

A personal observation is that decades ago I was able to get a handle on some of the economic levers of the modern economy- the effect of interest rates. monetary policy and had an amateurish understanding of the sort of balance that occurs in an economy.

It all got a bit weird from the 1990s onwards and I have only had an understanding since that economics are now quite distorted far beyond the measure of any understanding and I suspect that is the case with qualified economists as well.

I suspect with banking practices and the ever increasing distortion of real economic indicators by the rise of the offshore economy, the distortions of currency markets, quantitative easing and helicopter propping up of an increasingly fantasia-like meddling around the world we now live in a sort of science-fictionesque economic environment where economic theories are increasingly useless.

I think it is a slow moving runaway train and have given up entirely on the attempt to understand economics- I see no reason to believe much if any of the published economic indicators any more and those that I do see could just as easily be fake.

I suspect we would be shocked even if we understood how much political manipulation economic statistics receive.

So I've stopped even trying to contemplate economics and fractional reserve banking in a fiat money system. One might as well be Canute staring at a rising tide in my opinion.

At this stage I don't think there are any dependable economic indicators which are clean enough to utilise as a starting point.

The auditing of banks is as fake as the structure of banking itself.
REFORMS
The US Dodd Frank Act severely limits bank traders on taking trading risks with bank capital. An army of regulators has been created to look over the shoulders of banks and insurers and some shadow banks in the US, Europe and elsewhere. Bank capital reserves are increasing, though still less than desirable.
 

patslatt

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And when you have the ECB run as a political pawn at the mercy of a select bunch of politically connected investers, you get a system that is completely out of control.

The ECB and EU by its own rules (The Lisbon Treaty) is forbidden from coming to the rescue of a country's finances. But in the case of the Greeks which had investments from French and German banks, it came to the rescue by guaranteeing Greek Government Bonds. This avenue was taken so that the Greeks could raise money i.e. bail-out. This bail-out money then went to the German and French Banks.

The Greek State should have been allowed go burst; have its bonds discounted and French and German investors take a hit.

When the French and German banks were rescued, the ECB reversed its policy again and denied continued assistance to the Greek Banks. This was needed when the Governor of the Greek Central Bank said that if Syriza won the election that there would be a run on the Greek Banks. Of course this was a self fulfilling prophesy when Syriza won. A total of €40Bn was withdrawn by Greek citizens from their own banking system.

Now the Greeks have massively more loans than they have a hope of ever paying back. The ECB, the EU Constitution, the Creditors are putting the people of Greece under unnecessary and severe financial austerity.

Any independent authority that EU Institutions ever had is now highly compromised resulting in the whole apparatus, check and balances of a proper economic system rendered completely useless.

Might, not fairness and equity is the prevailing system of government throughout the European Union.
CONTAGION

A justified fear of contagion justified the ECB's actions. A Greek default could have led to a eurozone financial panic.

Greece is being given enough in new loans to keep going and the burden of payments on of Greek government debt is less than Ireland's. Nobody expects Greece to repay the sovereign debt but it can make the interest payments on low long term rates.

Greece's problem is political corruption. The poverty there is caused by the lack of a welfare state which Greece could well afford if it hadn't squandered state spending on things like crazy pensions for party political supporters and useless building projects.
 

WTTR

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Which will inevitably lead to fascism.

RELIGION

Principles are rarely practiced by people in power.
Giving rise to the wonderment of politicians to leaderless voters giving their democratic preferences all over the place to independents and extreme candidates of both left and right.


Such a society is only going in one direction!
 

patslatt

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Giving rise to the wonderment of politicians to leaderless voters giving their democratic preferences all over the place to independents and extreme candidates of both left and right.

Such a society is only going in one direction!
Political parties are capable of reform. In Ireland, there will be a lot more scrutiny and accountability of the minority government. But it is questionable if anything will get done given demagogic tendencies of opposition parties.

The growing trend of illiberal parties that are neofascist or associated with neofascists in France, Hungary, Denmark and the Netherlands is quite alarming. These parties are political poison and could erode democracy.
 

cyberianpan

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Also to be clear...the State knew this was the "Al Capone" style of a takedown...and in fact? There was no further underlying criminality in Anglo...just very bad morals

The barn door is still open on another Enron/Anglo here in Ireland...indeed..AIB lives still

Cyp
 

Odyessus

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There is pretty much a kind of fraudulence wrapped up in the core of banking in any case- right down to the very core of its existence. The only real audit of a bank's financial health is whether it can cope with demands from its customers for withdrawal of deposits- the 'run'.

If a bank cannot deal with demands caused by a 'run' on its deposits (and the vast majority of banks cannot) then the model is broken right there. So the very existence of banks depend on a fraudulent notion that they are safe and systemic in the first place.

Mervyn King, former Governer of the Bank of England wrote of some essential truths in a recent book on the banking model in recent years called 'The End of Alchemy' where he explained the sort of alchemy that is at the heart of fractional reserve financial systems and at the very core of banking.

A personal observation is that decades ago I was able to get a handle on some of the economic levers of the modern economy- the effect of interest rates. monetary policy and had an amateurish understanding of the sort of balance that occurs in an economy.

It all got a bit weird from the 1990s onwards and I have only had an understanding since that economics are now quite distorted far beyond the measure of any understanding and I suspect that is the case with qualified economists as well.

I suspect with banking practices and the ever increasing distortion of real economic indicators by the rise of the offshore economy, the distortions of currency markets, quantitative easing and helicopter propping up of an increasingly fantasia-like meddling around the world we now live in a sort of science-fictionesque economic environment where economic theories are increasingly useless.

I think it is a slow moving runaway train and have given up entirely on the attempt to understand economics- I see no reason to believe much if any of the published economic indicators any more and those that I do see could just as easily be fake.

I suspect we would be shocked even if we understood how much political manipulation economic statistics receive.

So I've stopped even trying to contemplate economics and fractional reserve banking in a fiat money system. One might as well be Canute staring at a rising tide in my opinion.

At this stage I don't think there are any dependable economic indicators which are clean enough to utilise as a starting point.

The auditing of banks is as fake as the structure of banking itself.
If a bank cannot deal with demands caused by a 'run' on its deposits (and the vast majority of banks cannot) then the model is broken right there. So the very existence of banks depend on a fraudulent notion that they are safe and systemic in the first place.
How could a bank possibly operate if they had to ensure that they could repay all money deposited with them on demand in the event of a bank run?

"Sorry, we can't give you a loan because all the customers who have deposited money with us might all ask for it back at the same time."
 

patslatt

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How could a bank possibly operate if they had to ensure that they could repay all money deposited with them on demand in the event of a bank run?

"Sorry, we can't give you a loan because all the customers who have deposited money with us might all ask for it back at the same time."
Success in coping with a run depends on the speed of money transfers and cash withdrawals of different deposit types and the ability of the bank to borrow money to pay off depositors. With adequately capitalised banks, the central bank would act as lender of last resort or if necessary would have the bank under pressure taken over or nationalised.
 


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