Wednesday, January 30, 2013
Frank Partnoy, professor of law and finance, University of San Diego
There's a very scary story in the January/February of Atlantic Magazine.
"What's Inside America's Banks," by University of San Diego School of Law professor Frank Partnoy and ProPublica's Jesse Eisinger, details evidence of hidden monsters -- high-risk trades, misleading information and made-up numbers -- that could gobble up the financial system once again. And scariest of all, they find no way to get at the truth.
The bottom line is that we have no idea what the bottom line is.
The unprecedented efforts since 2008 to save the financial industry, clean up banking practices and reform regulations simply haven't worked, says Partnoy. American banks such as Wells Fargo, Bank of America and JP Morgan are bigger than ever and more opaque than ever. Some are under civil or criminal investigation.
Public trust in banks is in the cellar. In the late 1970s, three out of five Americans said they trusted big banks "a great deal." Now only one in four admits to trusting banks at all.
The bigger problem is that investors don't trust them either. Reading a bank's annual report, where all information on worth, risk, types of practices and financial instruments should be found, is an exercise in translating outright guesswork and working through layers of obfuscation.
If investors think banks are "uninvestable," banks can't attract capital. Without capital, they will weaken and die.