Thursday, February 14, 2013

Elizabeth Warren Fails to Grasp the Full Scope of Her Own Question

Senator Elizabeth Warren is a lefty populist in the pocket of big labor, so she is going to be hard on big banks (occasionally with justification). However, during her first appearance at a hearing, as a member of the Senate Banking Committee, it is interesting to note that she glosses over an important reason why big banks may be selling below book value.

During a question she posed, Warren pointed out that bank assets may be of lesser value than actually listed on the books (banks could be dishonest is the way she put it, although book value can differ from real value for many corporations---not having anything to do with dishonesty). She  then stated that the only other reason she could think of that banks trade below book value is that the banks may be  too complex to understand and manage. This  may be the case to some degree, but there is another reason banks may be trading at low levels relative to book value and that is regulatory risks banks face, especially from someone like Warren, who was instrumental in getting the Consumer Financial Protection Bureau up and running and who now sits on the Senate Banking Committee, with her extreme interventionist bent.

Who wants to invest in bank stocks when you have Warren on the non-Cherokee war path? Who wants to invest in banks stocks, when you have Warren suggesting that bank stocks are trading below book value because banks are possibly being dishonest, when in fact they are very likely following generally accepted accounting principles?

Bottom line: Elizabeth Warren may be one very good reason bank stocks are trading below book value and she is either clueless about that possibility or she herself was being dishonest at her first Senate Banking Committed hearing by not bringing up the possibility.

(Note: She asks the question at approximately the 4:25 mark)



  1. "Senator Elizabeth Warren is a lefty populous" i'm sure you mean popu-louse meaning many lice.

    1. More likely he meant "populist", unless he was really intending to refer to her as "densely populated or having a large population".

  2. While I don't care for her and think she is nothing more than your typical backroom deal making democrat, I didn't find her question all that far off-base. Its a good question, but I'm not sure the government really wants the answer to why the banks are selling below book value since it could set off another bank to bank credit freeze like in 2008 if the reasons are as she suggest.

    Of course, if mark to market accounting were taking place, my guess is that banks would be trading well above their real book value. But the government, with the banks, pretty much killed m to m accounting, so its rather disingenuous of her to act as though there is something fishy going on with the numbers (numbers mind you that are regulated and reviewed already by well over 100 regulatory agencies) when the government has essentially allowed the banks to rig their books. Either she is ignorant of this fact or more likely show boating for those that are.

  3. Warren did make a very good point about taking the big Wall Street Banks to trial. The problem is that government lawyers have nothing to gain and everything to lose by taking these banks to trial. If I am a government lawyer and I win my trial against the bank, I'm going to be hated by the lawyers I work with because I make them look bad, I will be hated by other Wall Street banks who I want to hire me after I'm done with the government, and I will realize no financial reward for taking that risk. Not to mention I will be behind in all of the other cases assigned to me while the trial took place.