Can We Trust Them?

At first, this headline came as a surprise:

Wall St. Banks Expected to Post Weak 2nd Quarter Results (http://www.nytimes.com/2011/07/11/business/economy/banks-expected-to-post-weak-2nd-quarter-results.html?hp).

Then a horrible thought came to me. What if they were cooking the books all along, not unlike Bernard Madoff? And perhaps like those hedge funds that have been going like gangbusters for so long? Years ago, John Winthrop, a money manager who rented office space from Walter Noel, went to China to explain investments. "Trees do not grow to the sky," he told them. But that's what Wall Street would have people believe -- that the good times would just go on and on, at least for a few.

The banks are blaming the debt crisis in Europe (caused by whom again?), the deficit debate in Washington (Republicans vs. the Closet Republican, Obama), regulations about bank fees (to prove that regulations stifle business), federal dumping of mortgage bonds from the AIG rescue (which proves that the government doesn't know what it's doing when it comes to business), and concerns about the overall economic outlook (which, until now, did not involve the input of Main Street, which was made up of low-lifes who just weren't smart enough to rake in the big bucks).

What scares me is not the occasional dip in profits. It happens with many companies. Just like people, companies also have their ups and downs. What I find unnerving is the possibility that the "auditors" just rubber stamp the financial reports. If you look at annual reports, you'll see a disclosure that the auditors believe that the numbers presented herewith are accurate.

Long before there was "Take Your Daughter To Work Day," my mother took us to the company where she worked. I met the accountants who actually did auditing. The company was small, and the accountants would park themselves for three weeks each quarter to look at the books and make sure that every check had an invoice attached to it. In other words, they liked paper trails and wanted to see that everything was kosher before they signed off. I grew up believing that's the way it should be.

Speaking of disclosure, I own shares in JP Morgan Chase. I lost money on my initial investment because the brilliant minds made deals with Enron, which also engaged in creative accounting practices and their financial reports were rubber stamped by the once-reputable accounting firm, Arthur Anderson.

Which is why I ask, can we trust them?