04/02/2009 09:09 pm ET Updated May 25, 2011

Lipstick Won't Make Pigs Fly

In discussions about misguided notions, the name of a particular animal often comes up.

If, for example, the facts suggest an outcome is next to impossible, the conversation can quickly turn to the subject of flying pigs. Alternatively, when a proposition makes little sense on its face, there may suddenly be talk of putting lipstick on that very same creature.

But when it comes to recent government-sponsored efforts to convince Americans that things are better than they appear, both expressions would seem to apply -- mixed-metaphor conventions be damned.

Take today's move by the Financial Accounting Standards Board to relax the rules on mark-to-market accounting. According to Bloomberg, FASB was "pressured by U.S. lawmakers and financial companies" to make the change, which allows managers more leeway in pricing the financial assets on their balance sheets, including the toxic variety that many firms are now stuck with. Experts say that shift could boost banks' first quarter net income by 20 percent or more.

But will the newfound profitability mean the system is in better shape than before? Not really. In fact, the lack of transparency will likely add to the uncertainty that has undermined lending and other markets since the credit bubble first burst two years ago.

After a brief respite, the financial world will again come unglued over fears about the economic wellbeing of banks and other counterparties. Liquidity will dry up, Main Street will grow more worried about the future, and the economy will suffer the consequences of steadily deteriorating demand.

That is not the only area where proactive policymaking will likely bring about unintended consequences. For example, if you dig into the recent spate of "better-than-expected" economic reports, which many permabulls and TV pundits have siezed on as evidence of a turnaround, there appears to be something other than rigorous analysis involved.

According to Barron"s columnist Alan Abelson, citing work by Merrill Lynch economist David Rosenberg, some of the assumptions that government number-crunchers have been making as they transform raw data into headline statistics are more than a little optimistic, especially in light of broader economic developments.

Among other things, Abelson wrote in this week's Up and Down Wall Street column, "the seasonal adjustment for [February] new-home sales was the strongest since 1982," while the corresponding adjustment for durable-goods orders was the strongest since the series was first released in 1992.

Hmmm, interesting.

Unfortunately, while that might be taken as good news for now, an inevitable reconciliation of the reported data with what is actually happening on the ground sets the stage for a crushing disappointment later on.

The Public-Private Investment Program, or PPIP, is another effort that seems designed to make the bad look good -- at taxpayer's expense, that is. Quite simply, the plan put forth by Treasury Secretary Timothy Geithner uses the same kind of smoke-and-mirror chicanery that helped create the mess we are in to begin with.

In the end, nothing will really be solved, and the very costly mistakes of the private sector will end up on the books of the taxpayer, with little to show for it except a crushing load of debt for our children and granchildren. (For a helpful overview of how the scam works, check out the chalkboard commentary by the Khan Academy over at YouTube.)

Finally, while it's not clear whether the "assistance" was officially (or even unofficially) sanctioned, the allegedly good results that several banks reported they were having in January and February, which signaled to some wishful thinkers that a turnaround was at hand, may well have come at the expense of the financial black hole known as American International Group, now under U.S. government ownership.

As Zero Hedge argues in a recent post, "AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the Treasury Secretary...disclose the real extent of this, for lack of a better word, fraudulent scam."

Of course, all of these developments may be totally unrelated, or perhaps they reflect an extraordinary change in circumstances (not being felt by average Americans, it seems) that also help explain the recent rebound in share prices.

Then again, if only I had enough lipstick, I could make pigs fly.