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Home Publications Blogs Beat the Press WSJ Catches Banks Playing with Their Balance Sheets

WSJ Catches Banks Playing with Their Balance Sheets

Wednesday, 26 May 2010 11:54
Before its collapse, Lehamn Brothers played a series of games with its balance sheets to hide its true level of indebtedness. Apparently, the games continue. The WSJ has a nice piece showing that three major banks, Bank of America, Citigroup, and Deutsche Bank AG have all been sharply reducing their borrowings just before the end of the quarter so that their quarterly reports would not reflect the true extent of their leverage.
Comments (4)Add Comment
lies, damn lies, and balance sheets
written by frankenduf, May 26, 2010 1:25
prediction: generational shift in standard jokes- all the old 'sleazy lawyer' jokes will be supplanted by 'sleazy banker' jokes
Where to put the book?
written by Dirk van Dijk, May 26, 2010 2:25
Ever since they did away with mark to market, I have not know if one should file a bank's book value on the fiction shelf or the non fiction shelf.
written by izzatzo, May 26, 2010 3:42
Mark to market? That's how it all started, with appraisers marking houses to a bubble market for lenders, with credit rating agencies marking financial asset value to a bubble credit market.

When the bubble burst, that's what brought it all down, the forced transparency of marking to market, a government regulation that created unnecessary panic and mayhem that carried the housing market over the deflation cliff and caused a run on over-leveraged investment banks.

What do socialists think is necessary in a free market anyway, visible prices from an invisible hand? Doesn't anyone read Hayek anymore? No one can possibly know everything that's going on, so when some government regulation forces the provision of valuation data, that would be like forcing a bank to provide its customers with account balances of customer deposits, or retail stores to post prices on products.

Markets have evolved to new innovative levels that don't even require prices anymore, under the standard of, "If you have to ask the price, you can't afford it.", or for houses, "The price is the loan value, sucker.", or for medical care, "It's none of your business. The provider and insurer will tell you the price later.", or for creative restaurants that go out of business, "Pay whatever you think it's worth."

Keep your government hands off my market price signals.

Stupid liberals.
written by Bill Ferensen, May 26, 2010 4:56
One thing I didn't see mentioned in the article is what they're replacing it with. Are they reducing assets by the same amount? If so, all that demonstrates is that the assets they sell down are accurately valued. Are they replacing it with other types of short term financing? If so, what type?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.