Beginning with Bush and Paulson and continuing with Obama, Geithner and the newly-emboldened Ben Bernanke, the US Government has adopted the posture of over-engineering our emergence from the financial crisis, with an eye on stock market performance. Plans have been highly complex, rescues have been largely one-off and Congress has gotten into the business of executive compensation, company-specific tax policy and other minutia. The alternative: broad, sweeping, clearly communicated and transparent policies, those to which investors and taxpayers alike can rapidly assimilate and react. It is a matter of trust, and trust has been in short supply ever since the crisis hit. Unfortunately, the US Government's involvement has done little to rebuild trust on Wall Street or on Main Street. The result of the Administration's plans is depression followed by mania followed by depression, as incomplete or misleading information is slowly disseminated into investor consciousness while the equity markets see-saw depending upon which side of the wave we find ourselves. And recent bank earnings are only one shining example of why we are now locked into a painful, protracted process of false hope, failure and rebirth, when we could have chosen quick, deep pain, and transitioned to real hope and rebirth in a much shorter time-frame. But the US Government does not believe the US citizen can withstand such pain; they'd rather take the path of least resistance, delay the inevitable, buy time and pray that we - the collective "we" - get bailed out. Unfortunately life seldom works this way. If you've got it coming to you it generally comes: the only question is how quickly you can get it to go away.
When I hear friends both inside the major banks say "But we just reported earnings of $x billion and beat Street estimates; why is our stock getting hammered?" or "Our stock is trading at x% of book value when our earnings power is improving, why do investors continue to lack faith in our institution?," it only highlights the disconnect between the Wall Street (and Administration) world(s) and the real world. Clearly few investors look at Citigroup and Bank of America's headline earnings and think them to be of high quality: out-sized trading revenues, debt revaluation and one-time gains dominate the story. Customer revenues generally are poor. Credit charges are skyrocketing. Every kind of loan portfolio is under pressure. And with the mind-bending error of weakening the mark-to-market guidelines, transparency and financial statement clarity is worse than ever. The American Bankers Association and their lobbyists thought they were really smart; let's press the Financial Accounting Standards Board (FASB) to weaken FAS 157 (mark-to-market guidelines) in order that our member firms can show better earnings and capital ratios.
