The EU Smiled While Spain's Banks Cooked the Books - Bloomberg
Bloomberg
Julia Child would be so proud……TL
http://www.bloomberg.com/news/2012-06-14/the-eu-smiled-while-spain-s-banks-cooked-the-books.html
What’s now obvious is that Spain’s banks weren’t reporting all of their losses when they should have, dynamically or otherwise. One of the catalysts for last weekend’s bailout request was the decision last month by the Bankia (BKIA) group, Spain’s third-largest lender, to restate its 2011 results to show a 3.3 billion-euro ($4.2 billion) loss rather than a 40.9 million-euro profit. Looking back, we probably should have known Spain’s banks would end up this way, and that their reported financial results bore no relation to reality.
The danger with the technique (Cookie Jar accounting)is it can make companies look healthy when they are actually quite ill, sometimes for years, until they finally deplete their excess reserves and crash…..European Union officials knew this and let Spain proceed with its own brand of accounting anyway.
So to sum up this way of thinking: The best system is one that lets banks hide their financial condition from the public. Barring that, it’s perfectly acceptable for banks to violate accounting standards, if that’s what it takes to navigate a crisis. The proof is that Spain’s banks survived the financial meltdown of 2008 better than most others.
Except now we know they didn’t. They merely postponed their reckoning, making it inevitably more expensive.