Sense on Cents

I loved growing up in Boston. My beloved knows how often I think back to the lessons learned and ‘education’ received in those formative years of the 1960s and early ’70s.

While growing up as a youth in Boston, my friends and I experienced plenty of situations that shaped our characters and our outlook. I know for a fact that my youthful experiences also had a profound impact on shaping my instincts.

What did I learn growing up in Boston? What did I learn riding those city buses and trolley cars? What were the lessons learned at Hynes, Fallon, and Billings Fields? What will I never forget when my friends and I ‘hustled’ our way into sports venues (gaining entry to the Boston “Gaahden” via the fire exits, sneaking into Boston College football games amidst the college band)?

I believe the two greatest principles I learned growing up amidst my eight siblings (seven boys no less) and on those city streets and in our neighborhood were 1. trust and 2. credibility. The city ‘education’ was phenomenal.

Fast forward thirty-five years to 2010 and we see these principles on ‘trial’ almost daily. Who passes the smell test? Whom and what do we see as “full of you know what”?

While I beg your indulgence in touching upon my background, for me it is the foundation in calling people and situations into question as I continue to pursue the truth. On that note, let’s navigate.

We should not be surprised that the economic reality playing out in Europe continues to melt down. Nor should we be surprised that global investors are questioning the credibility of European central bankers. Why is this? These very central bankers attempted to ‘pull the wool’ over our eyes in executing Bank Stress Tests earlier this summer and promoting them as credible and robust. What a joke!!

I called these tests into question this past June in writing for Bloomberg Businessweek, Sense on Cents Enters The Debate Room:

Given the success of the bank stress tests run here in the U.S., should the same tests be administered in Europe as a precursor to economic recovery? Only if you believe in shell games, manipulating vigorous accounting principles, and the concept of “too big to fail.” Aside from that, I believe our bank stress tests were largely a charade, and the same would likely transpire in Europe.For any financial test to be deemed credible, the test itself needs to be truly robust. Those in America may claim our bank stress tests were truly successful, but I firmly believe the tests should be graded incomplete at best.

Why do I make this claim? Let’s enter the world of HELOCs (home equity lines of credit). The base-case assumption used in our bank stress tests was for cumulative losses on this product of 6 percent to 8 percent with a worst-case scenario of 8 percent to 11 percent. Those assumptions were ridiculously low. Our banking system continues to be chock-full of likely hundreds of billions in losses on this product. Those losses were largely overlooked in our tests.

Would European bank stress tests fully expose the nature and value of a variety of loans held on their books or merely disguise them in the same manner as the U.S. tests? If European governments want to play that game, then they should go right ahead and run the same tests and play the same charade, but do not expect real transparency and integrity along with them.

Moving right along, I thought back to my youth when reading the morning paper today and saw that my U.S. Senator Chris Dodd (D-CT) gave his ‘swan song’ yesterday on Capitol Hill. What did Dodd have to say? I wish I had prepared myself–and would encourage you to get a barf bag–as I vomited (figuratively speaking) when reading:

Speaking as the lame duck session of Congress wraps up, Dodd bemoaned the corrosive power of big money in Congress.

“Our electoral system is a mess,” he said. “Powerful financial interests, free to throw money about with little transparency, have corrupted the basic principles underlying our representative democracy. And, as a result, our political system at the federal level is completely dysfunctional.”

Wow!! What balls!!

Funny how Dodd finds this ‘religion’ when exiting the trough at which he fed for so long. Why did he never rail on the system and the corrupting of the principles from the pulpit when it meant something? Count me as unimpressed.

Not that there are not other representatives from the other side of the aisle equally as pathetic as Chris Dodd, but few in Washington have been as initimately involved in the Wall Street-Washington incestuous relationship as Chris Dodd.

Whether from Europe or in Washington, the ‘boys back at Hynes Field’ know fakers when they see them!

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

This entry was posted on Wednesday, December 1st, 2010 at 10:21 AM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.