Michael Shulman

Stay Clear of the Financials

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It's time for me to get testy again about my favorite subject: the banks.

The banks have been propped up through massive guarantees, massive bailouts, massive loans, changes in accounting rules, changes in regulations, obfuscation, outright lies and even body language. And the banks and our government have been able to convince people, with vocabulary, not facts, that things are fine.

All of this was necessary in the wake of Bear Stearns, Lehman Brothers, Merrill Lynch, AIG (AIG) and several other major players going belly up or the equivalent thereof.

But enough is enough.

The American people are far more sophisticated than during the Great Depression and much smarter than our elected representatives, and their surrogates, give us credit for.

Simply put, the government is using words to convince us the banks are fine, but reality is going to sink in soon as government action replaces words. 

A Quick Vocabulary Lesson

Let's look at the current vocabulary as it has stood to date and what it really means:

Stress Test: A test designed to prove the banks are fine. Check out this clip from Saturday Night Live -- it says it all.

Profits: Numbers generated through accounting gimmicks and one-time events, yet treated by all as sustainable.

Toxic Assets: Assets that if written off would bring down the bank -- perhaps the banking system -- and are to be forgotten like and ex whose idea of couples counseling is watching "Fatal Attraction."

Bank Reserves: Money put away to cover future losses after calculating the amount of profit to be (artificially) declared to sustain a stock price. They do not account for toxic assets, default rates, 10% unemployment or zero economic growth.

The FDIC: Santa Claus wearing a red, white and blue suit -- the government agency now essentially guaranteeing all bonds issued by banks.

Balance Sheet: The place where banks assets and liabilities meet each other -- except when inconvenient.