"Imagine, if you will, that's it's April, and you are getting ready to file your annual tax return."

"Imagine, if you will, that's it's April,
and you are getting ready to file
your annual tax return."
Also imagine that's it's perfectly legal to keep some of your financial activity secret from the IRS.

What would you keep secret? Maybe some of your income? Would it be reasonable to assume that you'd keep some of your earnings secret from the IRS - if it was completely legal to do so?

I think it would.

Now imagine, if you will, that you are applying for a home mortgage.

Also imagine that's it's perfectly legal to keep some of your financial activity secret from the lender.

What would you keep secret? Maybe some of your debt? Maybe the fact that you just lost your job? Maybe some overdue debts? Would it be reasonable to assume you'd keep that information secret when applying for a loan - if it was completely legal to do so?

I think it would.

Keeping some of your financial activity secret means that the person or entity seeking a true picture of your finances will not be able to get it.

That applies whether it's the IRS seeking an accurate assessment of your income, or a lender seeking an accurate assessment of your income, debt level, and credit history.

If you can keep some of your financial information secret, an assessment of your financial condition is completely meaningless.

This same principle also applies to the giant financial institutions. But unlike you and I, they are allowed to keep some financial information totally secret.

When we file our annual tax returns with the IRS, we have to come totally clean - we can't keep any secrets.

But when the giant financial companies file their accounting statements with the SEC, they are legally allowed to keep secrets.
Therefore, I contend that those financial statements are completely meaningless.

You may be thinking that I've lost my mind. You may be thinking to yourself, "I've never heard that these companies are legally allowed to hide whatever they want from the SEC and investors."

How can that possibly be?

The answer is "off-balance-sheet-assets" and offshore "special purpose entities."
Did you know that Wells Fargo has $2 trillion worth of "off-balance-sheet-assets?"

Here's a link to a Reuters story from January that spells it out...

Wells Fargo isn't the only firm using these privileged techniques. I can assure you of that.

So the next time you hear of a giant company having great earnings and a strong balance sheet, ask yourself what they might be legally hiding - and if knowing what that hidden information is would change the rosy picture in any way.

Remember, they have the legal license to hide whatever financial information they want. You and I don't.

Nobody ever said life was fair.

Have a great weekend!