So here we are, 6 months after the brink of “financial armageddon,” upwards of $7.5 Trillion-yes trillion with a “T”- promised, printed, and perq-ed away, and what have we gained?

After being told that our major financial institutions and banks were so nearly insolvent that only massive amounts of taxpayer funded infusions could save life as we knew it, we now have the major banks of the country boasting huge quarterly profits-in some cases, record profits.

Either Obama’s economic policies (built on the back of the Bush recovery plan) are as close to a miracle as it comes or something smells rather rotten. If you ask me, its time to put on a gas mask.

How is it that banks who were tens and hundreds of billions of dollars down the rathole such a short time ago can now be running profits? As far as I know, the federal government hasn’t actually taken over any (or at least many) of those toxic assets that start this ship a-sinking. And so far as I’ve been able to ascertain, home foreclosures haven’t come to a screeching halt, meaning those still-on-the-books toxic assets are still as deadly to the bottom line as ever before. With all that bad debt still remaining in the hands of the banks, and with the bail-out money spent gobbling up other troubles banks and funding “legal obligation” bonuses, just where are these record profits coming from?

Welcome to the ongoing world of inverse reality. If this is the beginning of a recovery then I’m the next American Idol.

Truth is truth, and hype is hype. These records profits are no harbinger of golden times around the corner. They are little more than the the same-old, same-old accounting tricks that made Enron a household name. Record profits? Sure, you’ve all jacked up your credit card interest rates and customer fees; you’ve all but stopped lending money to anyone without their own Fort Knox for collateral; but how does that erase the hundreds of billions of dollars of toxic debt you carry on the books? Face it friends…it doesn’t.

Recent changes in the mark to market accounting practices allow these banks to revert to the good old days of relaxed financial standards that made the Bush years such a boon for the shady and the immoral. Under the revised rules, banks can choose to value these bad debts any way they want to. They can pretend that the assets still retain the value they did when originated. To make it more clear, a mortgage held by the bank for $500,000 can still be considered as $500,000 in assets to the bank despite the fact that true market value today could be just half that amount. With such leeway, banks can pretend to be profitable all they want and still be buried under massive as-yet unrealized losses. And the federal government is playing right along.

They say that the key to a strong economy is consumer confidence. Perhaps they mean consumer stupidity. Becasue that “glimmer of hope” that was recently claimed to have been seen may well be little more than cheerleading. And sleight of hand.

Give the Obama administration for credit in trying to get things moving…they at least haven’t been paralyzed like Team Bush seemed to have been. And at least they are putting some restrictions on the money that goes out, instead of the blindfolded hand-out engineered by former Sec. Paulson. But allowing these banks to gloss over the reality of their financial solvency will likely prove to be a mistake, eventually eroding consumer confidence far longer and far more deeply when the piper comes calling again. Better to continue to face the music as we’ve been doing-bad news and all-than to falsely create a sense of improvement where none really exists. Reverting to the old way of faking it until it feels better isn’t exactly what I hoped for from the administration of CHANGE.

Listen, if these gilded reports allow people to keep working, then I guess that’s a good thing. But let’s not kid ourselves so readily. This isn’t the beginning of the recovery. It’s more like taking several steps back. Which means we’ll just have to relive it all again, and on top of the losses we already have and aren’t likely to get back soon enough.

Don’t be lulled. Keep your eye on the ball.

(cross posted at Bring It On!)