Oh here we go again...

Trichet said he's not going to tolerate runaway inflation in the ECB:

"'Our mandate is clear: maintain price stability in the medium term and be credible in this exercise in a way that inflation expectations are firmly anchored,' he told the Sunday edition of El Pais.

The ECB defines price stability as keeping inflation just below 2 percent 'over the medium term' and has struggled to meet that goal since taking charge of monetary policy in 1999. The central bank left its key rate at 4 percent on May 10 to try to curb the jump in energy and food prices. Still, the inflation rate in the 15-nation euro economy rose to 3.6 percent, the ninth month it held above the ECB's target."

Yeah, the price inflation rate is roughly double your target, you have left the overnight call rate at 4% for months, and you're "meeting your mandate."

Liar.

Just like Fisher. Say one thing, do another.

Heh guys, have you figured out that "The Jawbone" has stopped working yet?

Oh, the lying isn't confined to the Central Banks. As noted in last week's ticker rich people have been doing it too:

"May 31 (Bloomberg) -- Real estate billionaire Igor Olenicoff used several offshore banks to hide money from U.S. tax authorities, according to his guilty plea and court records linking him to an indicted former private banker at UBS AG.

Olenicoff, chief executive officer and founder of Newport Beach, California-based Olen Properties Corp., lied to U.S. tax authorities about offshore accounts with Barclays Bank in the Bahamas, Salomon Smith Barney in London, UBS in Switzerland, and Neue Bank in Liechtenstein, according to papers filed with his Dec. 12 guilty plea in federal court in Santa Ana, California."

That's very nice.

Here we have Barclays, Salomon Smith Barney and UBS, all of which operate here in the United States.

Why do we allow this, as Americans, to continue?

Moody's has created a "new unit" that now rates firms and their debt based on the implied risk of default via the CDS market. Guess what?

"The implied ratings frequently show that swap traders think debt is in more danger of defaulting than Moody's credit ratings signify. And here's the kicker: The swaps traders are usually right.
.....
Ambac and MBIA have raised billions of dollars of new capital so that Moody's and Standard & Poor's would keep top ratings for the bond insurers -- and the rating firms have done just that.

Moody's implied-ratings group paints a completely different picture. Using CDS market prices, Munves's unit assigns implied ratings of Caa1 to both MBIA and Ambac. That's seven notches below junk and 15 below the official Moody's rating."

Now tell me again why the SEC, FDIC, OCC, OTS and The Fed (along with Congress, which oversees all of the above) allow these clowns to claim they have written "money good" swaps, thus allowing the banks to claim that they have hundreds of billions of "AAA" securities they don't have to reserve against?

If the "alternative view" is usually right, isn't ignoring it out-and-out fraud?

I think it is. The market should think it is. But because we have a market that has decided that The Fed will prevent anyone from ever having to mark to the market, and will literally destroy our currency and economy before their banker buddies have to face the truth, we have a market where these investment and commercial banks trade at higher than single-digit stock prices.

This gambit is extremely dangerous, for it only works out well if the market for the underlying assets (in this case houses and LBO debt) turns in a relatively short period of time. If not, then the coupon payments that would be necessary to "hide" the fact that there are shortfalls starts to eat into operating cash flow and eventually consumes it.

Consider the case of Lehman Brothers (NYSE: LEH). A quick check of Yahoo Finance shows total debt of $439 billion.

But the revenue number on their balance sheet is $17.7 billion, on a trailing 12 month period.

Let's assume that this debt has a coupon of 6%. If the coupon was to not be paid, and thus had to be picked up by Lehman to hide the default (the nice "Level 3" game) then $26 billion in cash would be required to do so - approaching double the firm's annual revenue!

Now clearly, not all of their debt would undergo this, but the disturbing part of this "back of the envelope" analysis is that its necessary at all. See, without the games we'd have all the CDS that AMBAC and MBI wrote considered to be of junk quality, which means that the underlying assets on which they were written wouldn't be on the balance sheets as "AAA" credit - they'd either be at the underlying credit of the insurer or the issue's actual strength, which ever is greater.

This would result in hundreds of billions of additional writedowns that would have to be taken right now and would force several of these institutions under Tier Capital limits - putting them at risk of forced seizure. It might even put some of the into negative equity immediately.

The problem with hiding all of this nonsense is that the truth eventually wins.

It may take months or years, but it eventually wins.

There are plenty of people who points to the Argentine Crisis where we had several banks that were technically insolvent but were "saved" by The Fed allowing them to defer marks. What they miss is that in this instance the debt was both foreign and it was limited to a few institutions.

This isn't the case here. In this instance the debt is domestic (housing related) and its virtually every bank in the land that is involved to one degree or another. Not all of them are broke by any rational analysis, but a large number of them are, and this is not a hundred billion dollar problem. As I have repeatedly outlined we are looking at $2.5-$3 trillion in actual credit losses, almost none of which have been recognized to date, and close to $10 trillion in "home value loss."

What's even worse is that the smaller commercial and regional banks are up to their necks in commercial real estate commitments (including condos), building is still going on at breakneck speeds, and the "available" signs are sprouting like mushrooms after a monsoon. These institutions can't be saved nor will they be, and anyone who thinks this will simply be "glossed over" in the real economy has rocks in their head.

Oh, and if you think the banks won't game their accounting any way they possibly can, you'd be very wrong. Take a gander at this:

"Merrill Lynch & Co., Citigroup Inc. and four other U.S.