Corporations hide their balance sheet debt routinely, with their lenders, advisors, auditors, rating agencies and media sycophants abetting their collective efforts in maintaining the image of not only solvency, but of nonstop growth. Trouble is, sometimes this banal financial alchemy catches up with them, and then crises happen, whether limited to the firm, or in much more widespread economic fashion a la ten years ago. Past companies such as Enron, WorldCom, AIG, Lehman Brothers and many others ultimately either went under, or needed drastic bail-outs, due partly to hiding the true nature of their financial conditions from directors, regulators, investors, auditors and the press, and with sophisticated tools of the trade, which more often than not tend to come vetted by none other than central banks themselves.
Well, the central bank to seemingly all central banks just put out a telling indictment of specific types of trades used for skewing debt listings on balance sheets, and yet, the US Fed practically mandated the use of said trades for supposedly prescribing liquidity efforts in the years following the 2008 Financial Crisis. Who’s minding the store? Generally speaking, is hiding company debt dangerous and to be shunned across finance? Or is that simply for theoretical & academic pondering while business as usual proceeds at a different pace of accounting and oversight coordination?
In this 24th episode of Money & Fear, and as always, in the show’s detailed Show Notes listed under the videos on our website, we’ll review the aforementioned firms’ disastrous flirtations with debt hiding as part & parcel of their paths to bankruptcy or taxpayer salvation, along with how the Bank for International Settlements in Switzerland and its acolyte, the US Fed, view debt juggling via repurchase agreements – or repos. All the while asking critical questions over past habits, current practices, and future expectations over the nature of financial regulation, disclosure & oversight responsibilities. Fun stuff, especially if you plan on navigating around the second leg to the 2008 Financial Crisis dropping over the next few lunar phases…
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