This fascinating story from Reuters:

“The U.S. Treasury Department is planning to delay the release of any completed bank stress test results until after the first-quarter earnings season to avoid complicating stock market reaction, a source familiar with Treasury’s discussions said on Tuesday…The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said…

“There will be definitely be some information that will be provided at the end of it, but exactly what that will be, and when it will be provided, will come forth later,” Comptroller of the Currency John Dugan, who supervises some of the nation’s largest banks, said last week.”

Clearly the Treasury is waiting to release stress test results because first quarter earnings will be propped up by phony short-term profits at banks due to a wide variety of accounting gimmicks and government interventions (e.g. Fed buying mortgage paper to reduce rates and encourage refinancing, a situation which is obviously not sustainable, unless Bernanke truly hope to turn the US into the Weimer Republic). The hope, of course, is that these earnings reports will cause a rally providing a more friendly environment in which to release bad news and force some banks to raise capital.

The key question, as noted in prior posts,: Bet bullish on the premise that the Market will believe in the short-term earnings fraud or Bet bearish on the premise that the Market always recognizes that these types scams cannot be sustained on a long-term basis?

All in all, a simply astonishing, and depressing, state of affairs. It’s simply amazing how the government refuses to just tell the truth about the banks and begin a period of significant restructuring and ultimately a sustainable recovery from the crisis. As any turnaround investor knows, the most successful investments happen when mistakes are admitted, and major financial and management restructuring is undertaken. But, the longer mistakes are hidden, reality is ignored and fraudulent activity is perpetuated, the longer it takes for a real and sustainable economic recovery.