A Rout, not a Crisis

May 19, 2008

“Propaganda is the deliberate, systematic attempt to shape perceptions, manipulate cognitions, and direct behavior to achieve a response that furthers the desired intent of the propagandist.” √¢‚Ǩ‚Äú Garth S. Jowett and Victoria O’Donnell, Propaganda and Persuasion

There is another propaganda language game that is being played. Tin foil hatter that I am, I am convinced that there are teams of “experts” who spend thousands of hours testing these spins. Then a situation that seems obvious and clear is clouded by something else. One of these sleight of hand tricks is the use of the term “credit crisis”. Increasingly the term “worst is over” is added to the term. The word crisis is very misleading, and is defined by Webster’s as “a turning point, for better or worse”. Naturally, the Joe Goebbels types can use the term as a rallying call for a turning point, as in “the crisis has been averted”, “the worst is over”.

I refer you to Joseph Goebbel’s speech given on a warm, sunny day in June 5, 1943, the Winter Crisis is Over. Actually if you read this, what is different from present day propagandists is that Goebbels’s does acknowledge the suffering on the home front. He mentions the food shortage issue as a real crisis, not exactly permanent, but real enough. In many respects despite the spin, he is more honest than the present cast of characters. He does not say it will go away, instead he suggests more of it, but that “we are working on it diligently”. This is then couched in sacrifice and fanaticism. Despite the apparent “honesty” in his language, if you turn to the other German war reports from this fascinating site, you will get a good read on excuses and misinformation. Read fall of Monte Cassino and fall of Rome for examples.

What crisis propaganda allows in the modern instance is for the Government, banksters and Pig Men to hide fundamental losses under the guise of “just temporary” and even perhaps, “saving the system”.√Ǭ† Never mind that the ability to service and repay debts is severely diminished, job losses are increasing, and inflation is wiping out meager cash on hand. I would submit that there is zero evidence that these variables are getting better, in fact quite the opposite. But in crisis propaganda that is minimized. Since the War will eventually be won, what difference does it make if Rome was lost. After all there will be an inevitable ‘turning point” where the tide is turned. This article from Bloomberg describes how this game is played today, masked under “worst is over” temporary propaganda.

Taking losses on a balance sheet instead of an income statement is acceptable under accounting rules, which make a distinction between so-called trading books and long-term investments. Changes in value on the trading side go straight to revenue. Changes in the value of bonds held for the long haul can be marked down on the equity line of a balance sheet, as long as the declines aren’t considered permanent.

A review of the balance sheets and regulatory filings of more than 50 banks showed that 20 of them chose to keep some subprime- related losses off their income statements. The marks were recorded instead on balance-sheet items labeled “other comprehensive income” or “revaluation reserves.” The writedowns aren’t finished yet. London-based Fitch Ratings Ltd. expects as much as $110 billion in additional losses on subprime securities.

Declines in asset prices have spread beyond subprime though, affecting other mortgage bonds, securitized car and student loans, leveraged lending that backs private equity buyouts and credit derivatives. When all that is included, the IMF estimates that total losses from the U.S. subprime debacle will reach $1 trillion, of which $510 billion will be born by banks. That means some $130 billion in losses remains to be taken.

The following table lists 20 banks that have kept some of their writedowns on their balance sheets, along with the losses the banks have incurred in their income statements. All figures are in U.S. dollars, converted at the May 17 exchange rate if originally disclosed in another currency.

Firm                    Writedown &     Hidden
Credit Loss     Writedowns     Total

Citigroup                 40.9            2             42.9

Merrill Lynch             31.7            5.3           37

HSBC                      18.3            1.3           19.5

IKB Deutsche               9              7             16

Washington Mutual          8.3            0.8            9.1

HBOS                       5.9            1              6.9

Bayerische Landesbank      3.6            3.1            6.7

Fortis                     5.1            1.5            6.6

ING                        0.4            5.6            6

WestLB                     3.2            1.6            4.8

LB Baden-Wuerttemberg      2              2              4

Natixis                    3.2            0.2            3.4

Lloyds TSB                 1.3            1.5            2.8

HSH Nordbank               2.3            0.2            2.5

Commerzbank                1.3            0.6            1.9

Alliance & Leicester       0.7            0.7            1.4

Sovereign Bancorp          0.3            0.7            0.9

Norddeutsche LB            0.6            0.3            0.9

HVB Group                  0.6            0.1            0.7

Aozora Bank                0.5            0.1            0.6
____          _____          _____

TOTALS*                   139            35.4          174.4

Leave a Reply

Russ Winter’s Actionable

Click here to access Russ Winter's Actionable service, for subscribers only.

To subscribe to Russ Winter's Actionable and get instant access, click here.

Monthly Archives