Things are not as they appear: your champagne glass is full of beer.

Last week I drove past a bright neon sign that read: Gentlemen's Club. But it's really a strip joint. The words gentlemen's club allowed the patrons to imagine they were something they were not, as they indulged their basic cravings. It was all about appearances and feelings.

Today's banking crisis is all about appearances too. Modern banking is based on faith. When I borrow money from the bank, the bank has faith that I will pay it back. They also have legal remedies to make sure I pay it back. That's why modern banking works. It appears that honourable gentle people are borrowing money from honourable banks. It's all about appearances and feelings.

But now that the banking system is in trouble, the mask is coming off. We're beginning to see there may not be as much honour there as we had thought. Perhaps the gentlemen of the banking industry are not gentlemen at all.

First there were the robo- signatures in the US mortgage business. In the greed-inspired feeding frenzy that preceded U.S. sub prime mortgage blow-up, it got so crazy that many bank executives didn't even sign the mortgage papers. They used mechanical signature machines to sign for them. A few years later when foreclosure actions were in full force, some lawyer challenged the actual mortgage document. He argued it was not valid because the signatures were not valid. And the judge ruled in his favor. The mechanical robotic signatures did not hold up in court. The registered contract that protects the bank from borrowers who can't afford to pay them back had failed. And all those so called gentlemen who borrowed all that money and could no longer afford to pay it back, receive a huge free benefit.

Then there was the Iceland melt down. Iceland's government guaranteed the repayment of certain bail out loans received by Icelandic banks. The lenders who bailed out those Icelandic banks were assured that the Icelandic government stood behind those bail out loans. But when the Icelandic banks went broke again, and it was time for the people of Iceland to make good on their guarantee, the people rebelled. In the referendum of March 2010 the Icelandic people decided to renege on their guarantee. Iceland’s elected government were gentlemen when they needed the money, but turned out not to be so gentlemanly when they had to pay it back.

Apparently ordinary borrowers are not the only ones who stop being gentlemen when circumstances permit. Whole countries can stop being gentlemen too. Consider the Greek sovereign debt fiasco. Last week the Greek government “negotiated” a deal where about 90 billion Euros of Greek debt disappeared. That’s right; the Greek people now owe 90 billion Euros less than they owed the week before. And, they claimed the banks accepted the golden fleece “voluntarily.”

It appears that the gentlemen of the banking profession are neither gentlemen nor professionals. American bankers loaned money to thousands of people who couldn't afford to repay their mortgages. Icelandic banks set up lending portfolios on such thin ice that they went broke twice. And now the Greek people have decided they no longer have to pay back as much money as they borrowed.

In my investment book, Beyond the Bull, I suggest that deceit is an important part of the stock market.
As we strip away the grey suits and the distinguished looking gentlemanly faces, we see that banking, too, is not what it appears to be. Bankers have consistently loaned money to people who could not pay it back. The Gentleman’s Banking Club is just another neon sign.