Friday, May 18, 2012

Throwing money away, Spain's government hiring Goldman and BlackRock Solutions to review banks

Einstein defined insanity as doing the same thing over and over again expecting a different result.

Governments hiring third parties to review their banks and believing that this produces any positive result beyond large fees to the advisors fits this definition.

Since the beginning of the financial crisis, we have plenty of evidence that there is no beneficial result from engaging the third parties to review the banks.
  • Ireland tried both accounting firms and BlackRock Solutions.  Ireland has nothing positive to show for it.
  • Greece tried BlackRock Solutions.  Greece has nothing positive to show for it.
The bottom line is it is a complete waste of taxpayer money for a very predictable reason.  Nobody believes the results.

Why should market participants believe the results?

After all, if the results are suppose to fully reveal the true condition of the banks, then there should be nothing to hide.  So market participants can confirm the results. the banks should provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposures.

If the banks are going to provide ultra transparency, then there is no reason to engage the expensive third parties as the market participants can independently assess the banks for themselves.

Please note, today there is not one bank that provides ultra transparency and declares to the world that it can stand on its own two feet.

From the Telegraph,

The Spanish government has reportedly hired Goldman Sachs to carry out an independent valuation of Bankia, the ailing bank taken over by the state last week.
Is this the same Goldman Sachs that helped Greece hide its debt when it was seeing entry into the EU?  Is this the same Goldman Sachs that paid $550 million to settle an SEC investigation into its failure to provide proper disclosure to investors concerning the Abacus deal?

Spanish newspaper Expansion said on Friday that the US bank will review Bankia's and its parent company BFA's books and determine within a month how much the state should inject to refloat the lender, which had to be rescued after its auditor, Deloitte, identified several gaps in last year's accounts. 
Expansion said without citing sources that Bankia's financial hole may reach €8bn euros on top of the €10bn it needs to set aside to cover potential losses on real estate assets, as required by two financial reforms passed by the government in February and last week.... 
A senior government source said on Thursday that the Economy Ministry would name two independent auditors to review Spain's entire banking sector at noon on Friday. 
According to banking sources, BlackRock and Oliver Wyman are likely to be chosen. They will first value the sector as a whole and then look at each bank individually, the government source said.
Apparently the Spanish government has so much money that it can afford to knowingly waste it. 

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