There’s an old joke about the way businesses in France do their accounting. It says the typical French company keeps three sets of books. One to show the tax man when he asks to see the books. One to show him when he asks to see the real books. And the real books.

Clearly, the French have long experience in leading edge accounting. But compared to the way Americans banks are now allowed to do the job, the frenchies have once more fallen behind their American cousins. Banks in the U.S. now work with a new set of books that make the old three-set model look almost (you’ll forgive the expression) transparent.

It’s best to begin the tale of this world-beating accounting adventure with an understanding of the conspiracy that makes it possible—a conspiracy between government policy-makers and the banks themselves. Our government doesn’t want its citizenry, simple folk like ourselves, to know that its regulators allowed some of the nation’s largest banks to become by ordinary accounting standards insolvent, with more liabilities than assets. The banks, for their part, wished to stay in business. The true financial state of these technically insolvent institutions has thus become a secret more closely guarded than the formula for Coke or the seasonings in the Colonel’s chicken.

After ensuring secrecy, the government pumped literally trillions of dollars, some in the form or existing money, some in the modern form of newly printed money, into the black hole created by banker stupidity and greed. This, alas, failed to solve the problem, the black hole being too deep and the black hole-makers too adept at personally supping on these infusions. It was then decided that great innovations in the realm of accounting were needed.

First, a Financial Accounting Standards Board (FASB) rule change allowed banks to revalue their own assets rather than marking these assets to market—i.e. valuing them at what the market values them. A truly astonishing step that readers of this commentary are strongly advised not to emulate at home, lest they take up future residence in the place Bernie Madoff now calls home.

Next, the government decided to run stress tests to see which banks could absorb many more billions in government largesse—tests (and this is no joke), the institutions themselves are in charge of running. Talk about fearlessness when it comes to making a sick banking system well!

What is one to think of these shenanigans? Ultimately, like it or not, the future economic fate of all of us is in the hands of people who are taking us into economic worlds where old rules no longer apply. So we must believe these people know what they doing. We have to believe this. Surely, they know what they are doing. Because if they don’t…