Tuesday, January 25, 2011

Hussman: "We've laid a lovely turf over a toxic waste dump"

In John Hussman's latest commentary he explains the constraints of Monetary Policy, but he also takes a shot at how the United States has handled our financial crisis:

As for the U.S. financial system - particularly major banks - I am continually perplexed by the juxtaposition of tens of millions of underwater mortgages and millions of delinquent and unforeclosed homes, coupled with a set of FASB accounting rules (revised at the height of the recent crisis) that allows these debts to be carried at face value upon the discretion of the banks that report the data. I'll say one thing - it should take less than two seconds of thought to recognize that allowing dividends, bonuses, and other withdrawals of capital - without the requirement that banks mark their assets to market - is quite literally how Ponzi schemes function. We've laid a lovely turf lawn over a toxic waste dump, and are all too willing to assume that the underlying issues have been solved. The FASB and the Fed have turned the U.S. banking system into the Love Canal.

John's observation that we shouldn't allow banks to pass out money to shareholders and management while an enormous amount of toxic assets remain on the balance sheet is important, we will soon see how far regulatory capture has gone.

Scott Dauenhauer CFP, MSFP, AIF