Bankrupt Banks

Jim Sinclair's Mineset posted this article from Forbes with an exceptionally-clear explanation of why this year's change in rules by the Financial Accounting Standards Board (FASB) helps insolvent banks to stay open.

Sinclair's comments:

Banks lie about their assets.

FASB (due to the selling out of ethics in April 09) now permits banks and financial entities to fabricate the values of their assets.

Usually this is buried in the sale of the banks in bits and pieces.

Here it is held up for you to see.

Opening grafs from the Forbes article:

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It took the liquidation of Colonial Bank to reveal an ugly truth: the loans on its books were worth a third less than what the failed regional lender had declared them to be just weeks before.

It's an ominous sign about weaknesses that may be lurking in other banks' loan portfolios. Regulations give banks wide latitude about whether to recognize potential loan losses on their balance sheets, so they remain largely out of view.

This is exactly why many investors were up in arms when the Financial Accounting Standards Board, which sets U.S. accounting rules, seemingly buckled under pressure from Congress earlier this year. Its board backtracked from rules that forced banks to be more transparent about the true value of assets...
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So what?

If you have money in the bank, it'll likely be a LOT safer in the National Bank of Your Mattress, or its competition, the Security Bank of Your Gunsafe.

Or have you forgotten that the FDIC is dead broke?