SEC Checks Wall St.'s Books For What It Can't See (JPM)(BAC)

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According to several media reports, the SEC is looking at the books of Wall St.’s five largest brokers. The target is undisclosed problems with mortgage securities and loans for private equity transactions and LBOs. The government wants to know if the firms are "hiding anything".

To some extent the answer is that the companies cannot hide what they do not know. BNP Paribas made the point that it was suspending some funds because, in part, it could not value certain securities in an illiquid market.

What is a loan to Cerberus for its purchase of 80% of Chrysler worth? A loan for the purchase of Home Depot’s (HD) Supply business? A loan for the purchase of SLM where JPMorgan (JPM) and Bank of America (BAC) both planned to make loans.

The dollar value of some of these financial instruments and loans may not be something that the banks or SEC can set now. They have not been sold. They have not been traded.

The government may have to live with that for now.

Douglas A. McIntyre