Audit Notes: Paper It Over, Katrina Whistleblowers, Google Ad Fun,

The Wall Street Journal’s David Wessel flat-out says “Congress is planting the seeds of the next big bank bailout.”

He’s right.

The provision would permit more than 7,800 banks, with nearly $3 trillion in assets among them, to spread losses on bad real estate loans over six to 10 years instead of recognizing reality immediately.

This wink-wink accounting, which would allow banks to act as if they have bigger capital cushions than they do, is a remake of an old movie: the savings-and-loan horror show of the 1980s and the Japanese banking monster of the 1990s.

Allowing a bank that is broke or near-broke to pretend otherwise in the hope that temporarily depressed commercial real estate prices will eventually rise sounds nice. But history shows that too many such bankers realize the only survival strategy is to make more risky loans and pray they’re paid back.

Yet another example of our extend-and-pretend, paper-it-over economy.

— The Sun Herald’s Anita Lee reports that two whistleblowers in a Katrina insurer-fraud case have agreed to a settlement with an engineering firm they said altered damage reports to benefit State Farm:

The Rigsbys’ attorneys say in court records that Forensic turned over documents that show engineering reports were altered when State Farm disliked the conclusions used to help determine whether the company would have to cover wind losses, as opposed to damage from tidal surge covered by the federal flood insurance.

“In total, Forensic documents reflect 19 engineering reports for which Forensic changed its conclusions,” a motion filed by the Rigsbys’ attorneys says. “It appears that in every such case, at least some of the damage that Forensic initially attributed to wind was attributed to flood or otherwise concealed in the revised reports.

Lee reports the whistleblowers are still pursuing fraud allegations against State Farm. For more background on this check out Audit Chief Adjustor Dean Starkman’s writings on the subject.

— Here’s one of the perils of outsourcing your ad sales to Google:

This popped up on a Bloomberg column about securities fraud. So I clicked through, and greeted by this not-so-pro site for “Captain Chris World Leader In Self Defense”:

WARNING: Do Not Watch This Free Presentation if You Have Moral, Ethical Or Religious Reasons Forcing You To Cower Helplessly While Someone Attacks You, Your Wife Or Your Kids…

Well, all righty then!

And then further down, highlighted in yellow:

How to snatch a loaded gun right out of a “Gangsta’s” hand so damn fast it will literally tear his trigger finger off!

“Gangsta,” huh?

I’m guessing we wouldn’t find this ad in Bloomberg BusinessWeek.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.