NEW YORK (MarketWatch) -- Federal regulators in the U.S. have told Bank of America Corp. and Citigroup Inc. that, based on early results of the government's so-called stress tests of lenders, the banks may need to raise more capital, according to a U.S. media report Tuesday. .
However, the report is not a total surprise, as it is well known that capital levels at both banks have been an issue in the markets, and recent price activity in the banks' shares and the spreads on debt derivatives have expressed that concern.
Executives at both banks are objecting to the preliminary findings, which were part of the government's scrutiny of 19 large financial institutions, the Wall Street Journal reported early Tuesday, citing people familiar with the situation.
(Bill King shows us how the Federales manipulates the stats to foster bullishtness, -AM)
April 27, 2009 – Issue 3494 The King Report
Once again the scheme of creating better than expected economic data in the current month by revising the previous month lower occurred on Friday. Durable Goods Orders declined 0.8% in March; -1.2% was expected. But February was revised to 2% from 3.9%. And this is being spun as good news!!!
The extremely bullish sentiment is being fed by this chicanery that tries to euchre people into believing that the economy is bouncing. One month ago, people heralded the 3.9% jump in Durable Goods Orders as a sign that the economy had bottomed and was turning up. But that gain has now been cut in half. But few people notice the February revision and focus on the modest better than expected March data.
We will again walk through the math on the scheme. If January had 1000 units of Durable Goods Orders, February was originally reported to be 1039 units. Based on this data, March was expected to be -1.5% or 1023 units. But now February has been revised to 1020 units. So March units are -0.8% or 1012. Ergo Durable Goods Orders in reality is worse than expected in absolute units but due to economic statistical manipulation a better than expected month over month number has been manufactured so the bullish case can be presented.
(Looks like the FDIC, where anonymous staffers have criticized Timmy G.'s stress (take-home) test as a sham is trying to switch the 'focus'. Bair is basically describing the Soros 'side-pocket' plan which is the only plan that seems workable to me. -AM)
By Alison Vekshin April 27 (Bloomberg)
Federal Deposit Insurance Corp. Chairman Sheila Bair sought authority to close “systemically important” financial firms, expanding powers her agency uses to wind down failing commercial banks.
The new powers would let the FDIC take over an institution and shut it down, imposing the costs on investors and creditors rather than taxpayers who absorb losses when government protects companies deemed “too big to fail,” a concept that should be “tossed into the dustbin,” Bair said today in a luncheon speech at the Economic Club of New York.
“The FDIC is up to the task, and whether alone or in conjunction with other agencies, the FDIC is central to the solution,” Bair said. “Given our many years of experience resolving banks and closing them, we’re well-suited to run a new resolution program.”
U.S. regulators have created programs in the past year to prop up companies by giving more than $90 billion to Citigroup Inc. and Bank of America Corp., providing more than $180 billion in loans to American International Group Inc. and setting up debt guarantee programs. The FDIC is charged with winding down banks and thrifts, including 29 that failed this year.
“Government should not be in the business of arbitrarily picking winners and losers,” Bair said.
The absence of the authority “has contributed to unprecedented government intervention into private companies,” Bair said. “Taxpayers should not be called on to foot the bill to support non-viable institutions because there is no orderly process for resolving them.”
Bair recommended the authority be set up under a “good bank” -- “bad bank” model, where the government would take over the troubled firm and force stockholders and unsecured creditors to pay the costs. “Viable” portions of the company would be put into the good bank, while the troubled portions would remain at the bad bank to be sold or closed over time, Bair said.
(Man oh man, swine flu, Summers' bummer and the FDIC switcheroo ... news really does break with the cycles ... I'm starting to becoming a believer in the Ganniac Wheel of Time and Price.-AM)
Throughout history the power of a great nation has been projected through various means. During the reign of the Greek and Roman empires, power centered around the ability to be victorious in naval warfare. Long ships that were powered by banks of oarsmen were designed to ram and sink enemy vessels and/or come alongside to engage in hand-to-hand combat.
During the age of warring European empires, the size and breath of ones' fleet ... usually presented to assist in the negotiation of contentious trade issues... would often bring the parties' to a resolution through their mere display.
American empire has been promulgated through vastly superior military might be it air, land or sea. Only the Soviets proved to be a near-adversary with the doctrine of mutually assured destruction.
Up until the end of the cold war projection of American power was predominantly 'hard power', economic and military power were intertwined to maintain 'stability' and adherence to, wherever possible, the 'free-market' system. For the worlds' weaker sisters the financial elites utilized international organizations to project American financial power by convincing the political and financial leadership of underdeveloped countries to accept enormous development loans thus saddling them with huge debts which made them more pliable to political pressure.
We are now however looking down the barrel of a multi polar world in all facets of human endeavor : diplomatic, economic, military, political, legal, and cultural. How, pray tell, can America maintain its' dominance?
Simply put, we have to pick our battles.
In terms of military as the buzzword 'transformation' becomes the pablum narrative for a scatter shot approach perhaps the best summation of future trends comes from a paper for the National Intelligence Council's NIC 2020 project by Martin van Creveld called “Modern Conventional Warfare: An Overview“:
'Globally speaking, as conventional war became smaller and much more expensive, both its importance and the political results that it could yield declined. Not only did nuclear proliferation limit it to weak states, but it was accompanied by a very large number of conflicts fought between, or against, political organizations that were not states. As those conflicts evolved and multiplied, a very large number of terms were used to describe them: be they brush fire war, or insurgency, or guerrilla, or low intensity conflict, or asymmetric conflict, or terrorism (the most recent one), or whatever.
Whereas the threat of nuclear escalation limited conventional warfare from above, sub-conventional war did the same from below. As a result, it has been caught in a vise.'
Clearly we will not be presented with clear-cut battles nor clear targets to maintain our military dominance. If Theodore Hook's 17th century quote is to be fulfilled, "The best way to predict the future is to invent it", America will need to look beyond just her military to maintain her dominance since terrorists are not as easily pigeonholed as Huns, Nazis and Commies.
Through the eyes of this humble blogger it would appear that economic dominance is the battle that is clearly defined and a future that the Federales will try to invent. After all the desire to live a prosperous life is a theme that unites all peoples. Diplomatic, legal, cultural and political consent is most easily manufactured from a populace that is succored by material comforts.
To win the world's hearts and minds will necessitate the inculcation of American exceptionalism by the sharing not of material riches but rather the acceptance that attainment of such is the end goal of our 'collective' aspirations.
Soft power? Smart Power? No rather the pablum narrative of shared power when in fact all that is shared is the groupthink that the American economic model is a shared aspiration.
Both the battle and the outcome would seem to be wholly counter-intuitive given the ongoing financial crisis. Methinks the Federales see this inflection point as an opportunity to establish a new Financial Imperium.
The sham stress test is Round 1, the manufactured outcome is temporary and/or stealth nationalization. Round 2 will be absorption of smaller banks by the anointed few.
By: Albert Bozzo, Senior Features Editor | 25 Apr 2009 | 06:48 PM ET cnbc.com
One of the 19 financial institutions that received a government stress test would require additional capital, based on the initial findings, according to an industry source.
“At least one firm, under the stress test assumptions, will require more capital,” said the source.
Though the source did not identify the company, the government in its report Friday said results were "conveyed" to the participating firms at the end of April, so the bank in question would be aware of the Federal Reserve’s assessment.
"There are two things that are terribly wrong,” former FDIC Chairman Bill Isaac told CNBC.com. “First, that was publicly announced. I can't imagine what Treasury was thinking when it made that move. It has been causing incredible angst in the markets … The second big problem is that the Treasury is directing the stress testing, apparently with direct involvement of the White House at the highest levels. Bank regulation by law is supposed to be carried out by the independent banking agencies without any political interference.”
(I would certainly suggest that there are certainly more then two things that are terribly wrong... but what pray tell is the name of the mystery bank that not even a sham test could put lipstick on? Do you really need to guess?-AM)
FT Weekend : Meanwhile, people familiar with the situation said regulators indicated that Citigroup might need more capital beyond a planned conversion of preferred shares into common stock that will give the government a 36 per cent shareholding.
(What a shock! In this new Financial Imperium however just you watch ... if the Federales get their way ... the last shall be first. Temporary nationalization has oxymoron written all over it. -AM)
By: Albert Bozzo, Senior Features Editor | 24 Apr 2009 | 02:17 PM ET cnbc.com
The US government, releasing details of how it conducted "stress tests" on the nation's 19 largest financial institutions, said “most banks currently have capital levels well in excess of the amounts needed to be well capitalized."
In terms of GDP scenarios, the stress tests assume baseline levels of minus 2 percent in 2009 and plus 2.1 percent in 2010. (IMF already more negative stating in yet another downward revision, 2.8 contraction in 2009 and 1.5 expansion in 2010.-AM)
The adverse scenario levels are negative 3.3 percent this year and growth of just 0.5 percent next year
The administration said the tests were not "pass/fail". (If no one can fail than how can anyone pass?-AM)
[BRIEFING.COM] According to a government statement, the methodology used in conducting the government's bank stress tests was not intended to be a worst case scenario, and large banks need to hold additional capital, according to Dow Jones.
(Hope for the best, plan for the ... the... oh we can always make another plan later.-AM)
KEVIN DEPEW of Minyanville : The government views a 3.3% overall contraction with a 8.9% unemployment and a 14% decline in house prices this year followed by a rebound in GDP of .5%, a 10.3% unemployment rate and a 4% decline in home prices as the 'more adverse' scenario.
Not surprisingly, their worst case scenario is what I would consider a best case scenario for the economy. (Amen Brother Kevin. -AM)
A research firm predicts 3,589 public companies will report that their auditors doubt they will continue as going concerns.
The auditors of nearly one-quarter of publicly traded companies feel that the companies may not live out the year.
Auditors have become increasingly doubtful about their clients' ability to continue as going concerns, according to the most recent report on the subject by Audit Analytics, which has tracked the number of such going-concern opinions this decade in a recently released report. With calendar year-end 2008 filings still coming in to the Securities and Exchange Commission, the research firm estimates there will be 3,589 going-concern opinions eventually filed for 2008 annual reports, an increase of 9% compared to last year's total of 3,293 going-concern opinions.
Audit Analytics made this prediction based on a compilation of regulatory filings made as of late March for 2008 10-Ks. Its data suggests auditors' going-concern doubts were more commonplace compared to the previous year. If the firm's estimate is correct, the number of auditors' documented worries about their clients' viability will reach the highest level this decade.
Auditors' going-concern evaluations don't stop there. If they have doubts about a company's future, they tend to confer with their client's management and review the company's plans for overcoming the problems noted and decide whether those plans can likely keep the company in business. If they still aren't satisfied, then the auditors will explain why they have "substantial doubt" about the company's ability to stay a going concern in an opinion filed with the company's 10-K.
By Michael Tsang and Eric Martin April 24 (Bloomberg)
Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.
While the Standard & Poor’s 500 Index climbed 26 percent from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Maryland-based research firm, show. That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone at PNC Financial Services Group Inc.
“They should know more than outsiders would, so you could take it as a signal that there is something wrong if they’re selling,” said Stone, chief investment strategist at PNC’s wealth management unit, which oversees $110 billion in Philadelphia. “Whether it’s a sustainable rebound is still in question. I’d prefer they were buying.”
That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992, data going back more than 20 years show. That drop preceded a 2.4 percent slide in the S&P 500 in August 1992.
“They’re going to say, ‘Thank you very much,’ and move on to cash or something else,” said David W. James, who helps manage about $2 billion at James Investment Research Inc. in Xenia, Ohio. “This is not a situation that suggests to us we’re seeing an economic recovery.
LEWIS Bene. Don Paulson. I need a man who has powerful friends. I need many billions of dollars in cash. I need, Don Paulson, those regulators that you carry in your pocket, like so many nickels and dimes.
VITO PAULSON What is the interests for us?
LEWIS You name the percent. In the first year, your end should be many millions of dollars. And then it would go up.
VITO PAULSON : And what is the interest for your shareholders?
LEWIS (to BEN)
(then to DON PAULSON)
I'll take care of the shareholders, outta my share.
So we receive a percentage for finance -- political influence, and legal protection, that's what your telling me?
Why do you come to us? Why do we deserve this generosity?
If you consider many millions of dollars in cash just finance, te salute, Don Paulson.
VITO PAULSON (gets up to pour LEWIS another drink)
I said that I would see you because, I heard that you're a serious man, to be treated with respect.
(then, after sitting)
But uh, I must say "no" to you -- and I'll give you my reasons. It's true, I have a lot of friends in politics, but they wouldn't be friendly very long if they knew my business was leverage instead of regulating, which they rule that as a -- harmless vice. But leverage is a dirty business.
It -- makes -- it doesn't make any difference to me what a man does for a living, understand. But your business is ah -- a little dangerous.
If you're worried about security for your billions, the taxpayer's will guarantee it.
Aw, you're telling me that our shareholders's will guarantee our investment?
VITO PAULSON (to TIMMY G)
Wait a minute...
[LEWIS and BEN look at each other, realizing TIMMY's faux pas].
My apologies of course, I meant no disrepect.
VITO PAULSON (pauses)
Very well. Here is my offer which you shall not refuse ...
By Karen Freifeld and David Mildenberg April 23 (Bloomberg)
Bank of America Corp. Chief Executive Officer Kenneth D. Lewis failed to tell shareholders about mounting losses at Merrill Lynch & Co. because of pressure from federal regulators to complete the takeover, according to New York State Attorney General Andrew Cuomo.
Henry Paulson, who was Treasury secretary last December, may have threatened to remove the management and directors of the Charlotte, North Carolina-based bank if they didn’t comply, Cuomo wrote in a letter to Congress that was released today. Lewis also was told not to disclose his opposition to the Merrill deal because of “staggering” deterioration at the brokerage, or the regulator’s action, according to Cuomo.
Lewis and the board of the biggest U.S. bank by assets are under fire for not telling shareholders that New York-based Merrill’s fourth-quarter loss was spiraling toward $15.8 billion before they voted to approve the deal in December. Shareholders cast ballots April 29 on whether to re-elect directors including Lewis and split his roles as chairman and CEO. Some investors are calling for the 62-year-old Lewis, CEO since 2001, to resign.
Paulson kept the Securities and Exchange Commission, which is responsible for making sure companies disclose material information to their investors, in the dark, according to Cuomo.
“Questions of Bank of America’s disclosures were left up to Bank of America,” Paulson said in a statement e-mailed to Bloomberg by Michele Davis, of the Brunswick Group, a corporate communications company.
Perhaps the funniest bit that's come out the last few days is Timmy G waxing that most banks are well capitalized and that he won't need any additional funds to perform bank rescues. That's logically equivalent to stating that most folks are law-abiding so as a result we don't need prisons and spiritually equivalent to saying that since most folks are virtuous we no longer need hell.
As the Federales implement their version of 'No Big Bankster Left Behind', events overseas are casting a more realistic foreshadow... 1) the German bad bank plan has been whittled down to 2 versions, one big bad bank or a bunch of small bad banks (pretty much the same as the Soros' side pocket plan which is the only approach I've seen advocated that would seem to have a chance at working), and 2) the IMF declaring that bad loans in the U.S. will crest past that seen in the Great Depression and one might as well, regardless of domicile, go sailing until at least spring of 2010.
Britain deflating, Japan imploding, China becoming the commodity cycle master (buying to diversify reserves, selling to reduce their 'yuan cost average'), Eastern Europe collectively not opening up their bills to see what their foreign denominated debt balance is this month... and what is the collective Yankee response?, soothing proclamations that the arse has arrived or is at least forming or is perhaps guardedly showing signs of settling in and breathless proclamations carried by Hee Haw and Bubblevison that hey we all know that the next 10,000 points will be higher.
And the cherry on the pablum narrative sundae? The stress tests, which frankly are more of an IQ test. Oh the bullisht angst of it all, do the Federales love me or do they love me not? Reading the tea leaves it would appear as if the fix is in and the regional banks will be as Joe was to the Volcano. The Federales have it ingrained into their psyche that the projection of American power is so intertwined with having the world's dominant financial institutions that literally what is good for America and what is good for the top echelon banksters has become logically ubiquitous. Call it deep capture or call it our financial manifest destiny ... it is the cup from which all policy flows.
So get ready for the big surprise folks, the major money center banks are all stressed, most certainly, but they all have the financial strength to weather the storm. Many regionals however will need oodles of capital from the private sector and if they can't get it guess what will happen to them? That's right they will become grist for the 'big bankster' mill so by growing even larger the insolvent zombies can eventually be nursed to health by consuming brains ... uh I mean deposits. Of course a nice taxpayer-financed wrap will be provided to allow this consolidation to occur. Without Congressional approval thank you very much.
Regional banks are about to learn two interconnected lessons: 1) y'all should have spent more money on lobbying and 2) some banksters are more equal than others.
17 Apr 2009, 0041 hrs IST, PTI Times of India via King Report
WASHINGTON: The Chinese cyber spies have penetrated so deep into the US system — ranging from its secure defence network, banking system, electricity grid to putting spy chips into its defence planes — that it can cause serious damage to the US any time, a top US official on counter-intelligence has said.
“Chinese penetrations of unclassified DoD networks have also been widely reported. Those are more sophisticated, though hardly state of the art,” said National Counterintelligence Executive, Joel Brenner, at the Austin University Texas last week, according to a transcript made available on Wednesday.
Listing out some of the examples of Chinese cyber spy penetration, he said: “We’re also seeing counterfeit routers and chips, and some of those chips have made their way into US military fighter aircraft.. You don’t sneak counterfeit chips into another nation’s aircraft to steal data. When it’s done intentionally, it’s done to degrade systems, or to have the ability to do so at a time of one’s choosing.”
Referring to the Chinese networks penetrating the cyber grids, he said: “Do I worry about those grids, and about air traffic control systems, water supply systems, and so on? You bet I do. America’s networks are being mapped. There has also been experience of both Chinese and criminal network operations in the networks of some of the banks”.
(A lot of chatter about 'inflation targeting' in the blogosphere. Please review this post from a couple months ago and realize that the Federales have been inflation targeting for well over a decade. Today's WSJ reports a lively debate between Kohn and Volckner where Volckner harrumphed that by setting 2% as an inflation objective, the Fed is "telling people in a generation they're going to be losing half their purchasing power". Yes Paul.... And?
One of these days Mr. V will be lumbering down a hall and he'll go into a room where the Federales are having a meeting that he wasn't invited to and his hair will enter a state of permanent fire. That'll be a fun article to read. -AM)
Deceit ain't just where you place da bum
Financial Times Published: January 7 2009 02:00 By Krishna Guha
Support is building within the Federal Reserve for a move to establish a de facto inflation target in order to shore up inflation expectations and reduce the risk of deflation.
A growing number of top Fed officials, including longtime sceptics, are coming round to the idea that an explicit numerical inflation objective would be a valuable bulwark against a shift towards expectations of price declines.
Stating an inflation objective would take the US central bank closer to central banks such as the Bank of England and the European Central Bank that have formal targets.
Minutes from the December Fed policy meeting, released yesterday, say officials discussed providing "a more explicit indication of their views on what longer-run inflation rate would best promote their goals".
The minutes say: "Added clarity in that regard might help forestall the development of expectations that inflation would decline below desired levels and hence keep real rates low and support aggregate demand."
Senior Fed officials believe the subject will need to be debated further as a priority in the weeks and months ahead.
(This will undoubtedly be presented as a new initiative. To suggest anything to the contrary would imply that the Federales have been deceitful with previous policy announcements. Why if folks actually confessed that our leaders have tried to inflate their way out of the business cycle for years then blame for our current situation might be appropriately apportioned by the slavish MSM. -AM)
By Jim Grant Grant's Interest Rate Observer December 2, 2005
Former Fed governor Laurence H. Meyer, in a 2003 talk at the Federal Reserve Bank of St. Louis, described a telltale exchange on the subject of how to define[price/financial] stability. The scene was Meyer's first FOMC meeting, in July 1996, and governor Janet Yellen was making the case for inflation targeting; she said she would aim for 2%. Greenspan replied that the Federal Reserve had a mandate to foster stable prices, not rising ones. To which Yellen rejoined that the Fed also had a mandate to promote full employment. To hear her tell it, a small positive rate of currency depreciation is a necessary lubricant for economic growth (not so, according to a survey of 133 economists over 50 years, produced in 2002 by Stanley Fischer et al.)
"Janet then seized the initiative", Meyer related,"asking the chairman how he would define price stability. Greenspan tried to get away with his vague definition; 'Price stability is the state in which expected changes in the general price level do not effectively alter business or household decisions.' But Yellen pressed him and asked him if he could put a number on that. Remarkably, the chairman agreed, and said he preferred zero inflation, correctly measured. Janet asked him if he could settle for 2% incorrectly measured."
Meyer finished his story;
During a go-around on the topic, only a few Committee members preferred a target of zero, and the consensus was very strong for a 2% target. The chairman ended up summarizing the discussions 'an agreement for 2%' but he cautioned members not to reveal that such a discussion took place.
(Even if the results of the 'leaked' stress tests prove to be false methinks that the truth is not much different than this 'alleged' fiction. At the end of the day despite the best efforts of the powers that be one thesis will always assert and reassert itself : the secret is, there are no secrets.-AM)
(Add-on : Calculated Risk gets it exactly right when he asks 'Why are they even responding?' -AM)
The Turner Radio Network has obtained "stress test" results for the top 19 Banks in the USA. (Corrections/clarifications below in bold)
The stress tests were conducted to determine how well, if at all, the top 19 banks in the USA could withstand further or future economic hardship.
When the tests were completed, regulators within the Treasury and inside the Federal Reserve began bickering with each other as to whether or not the test results should be made public. That bickering continues to this very day as evidenced by this "main stream media" report.
The Turner Radio Network has obtained the stress test results. They are very bad. The most salient points from the stress tests appear below.
1) Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent. (Based upon the “alternative more adverse” scenario which had a 3.3 percent contraction of the U.S. Economy in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth of the U.S. Economy but a 10.3 percent jobless in 2010.)
2) Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans. (Without further government injections of cash)
3) If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.
4) Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.
5) Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.
6) Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital! (HSBC is NOT in the top 19 banks undergoing a stress test, but is mentioned in the report as an aside because of its risk capital exposure to derivatives)
7) Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs,Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!
The debt crisis is much greater than the government has reported. The FDIC`s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.
Put bluntly, the entire US Banking System is in complete and total collapse.
For those who may be skeptical about the veracity of the stress test report above, be reminded that only last Sunday, April 12, this radio network obtained and published a Department of Homeland Security (DHS) Memo outlining their concerns that returning US military vets posed a domestic security threat as "right wing extremists." That memo, available here, is marked "FOR OFFICIAL USE ONLY" and contained strict warnings that it was not to be released to the public or to the media. We obtained it and published it days before other media outlets.
Details of certain aspects of the stress test reported above have now been CONFIRMED through REUTERS News service when they disclosed the risk-capital percentages publicly on April 6, 2009 at this link
Further, todays Wall Street Journal (April 20, 2009) is confirming at this link that lending by the largest banks has DECREASED 23% since the government began the T.A.R.P. program, causing many in Congress to ask where the money has actually been going. Apparently, it has been going into propping-up the failing banks instead of out in loans to the public.
Additional details and proofs are forthcoming. . . . . continue to check back on this developing story.
UPDATE 1154 HRS EDT April 20, 2009 --
The United States Treasury has openly and brazenly lied regarding our stress test report and we can prove they have lied about it.
This morning, the United States Treasury issued a statement (HERE) claiming they do not yet have the results of the Stress Tests, rebuking our report
How do we know its a lie?
Because of this from April 10th:
April 10 (Bloomberg) -- The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.
The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.
How can you be ordered not to release something you don't have?
Since that was published on the 10th of April, we therefore know that the results exist and Treasury, the banks involved and The Fed have them, as The Fed was concerned that some banks might try to use them (perhaps in a misleading fashion) during their first quarter conference calls and earnings releases.
Sorry guys, but whether the Turner Radio Network has the real results or not is no longer material. What's material is the claim that Treasury doesn't have them, since they told the banks on the 10th not to release them, and you can't release what you don't have.
The problem with lying is that eventually you forget your previous lies and thus get caught when you contradict yourself.
WASHINGTON (Reuters) Thu Apr 16, 2009 12:50pm EDT By Mark Felsenthal and Karey Wutkowski
The results of tests to gauge how the top 19 U.S. banks would fare should the deep U.S. recession worsen will be publicly disclosed on May 4, a regulatory official said on Thursday.
The so-called stress test results will include a capital recovery plan for banks that regulators determine would be short of capital if the economy's downturn gathered steam and unemployment shot unexpectedly higher, the official said.
Regulators have not made final decisions on how to present the results, the official said. Regulators will disclose at least some of the information, but no decision has been made on whether banks themselves will disclose some as well.
The official added that the goal is to ensure that all the results are presented on a comparable basis.
Regulators plan to publish a document on April 24 explaining the assumptions underlying the tests, the official said. The document will outline the methodologies regulators employed and serve as a guide on how to interpret the results.
Regulators plan to hold discussions with the banks about the standardized stress tests from April 24 through May 4, according to the official.
Once the test results are announced, banks found to need more funds will have six months to raise the capital from the private markets or can take an infusion of taxpayer money.
Announced in February, the tests are designed as an exercise to provide credible information on the health of the U.S. banking sector. Regulators hope that once investors have the results, they can accurately evaluate the health of banks' balance sheets, and private capital will return to the sector, stabilizing the financial system and increasing lending.
"There is a lot at stake," said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution, a Washington think tank.
"It's going to be important that this is viewed as a test that really has validity. Unless the test results show, in the aggregate, the need for at least $100 billion of capital, a lot of people aren't going to think the results are credible."
A financial industry source said regulators will have to state clearly what will happen to the weaker banks with capital holes, or risk a severe market reaction.
"It's designed to inspire confidence, but creates a whole new set of expectations in the market that, if not met, can totally backfire," the source said.
(While it was commendable that Jamie Dimon suggested that he wouldn't buy his company's stock given its' huge run-up it is absolutely shocking to hear the chief executive of a major exchange downplay the current rally. First time for everything I guess...-AM)
Published: April 15 2009 23:30 Financial Times By Anuj Gangahar and Chrystia Freeland
The March stock market rally that fuelled hopes of a broader economic recovery was deceptive because “real money” investors remained on the sidelines, according to the chief executive of NYSE Euronext, the world’s largest stock exchange.
In rare comments about market movements, Duncan Niederauer said in an interview with the Financial Times that the rally was driven by short-term traders trying to take advantage of high volatility and not by large institutional or other long-term investors.
Mr Niederauer suggested the high trading volumes and gains in leading indices did not necessarily reflect any real conviction that the worst of the economic crisis was over.
He said the volumes had been concentrated in a handful of stocks.
In fact, he said volumes had held up well because of what he termed a “traders’ market” in which participants tried to take advantage of greater volatility without needing to take a view on, or believe in, the long-term prospects for recovery.
He said: “The real money investors are still waiting. I think they’re waiting, they’re watching. They want to make sure that what we saw in March is real. And I think once they are convinced you will know it. The market will have a totally different tone to it.”
He added that the rally had also been concentrated on a handful of stocks and that large institutions and long term investors were largely keeping their powder dry.
Mr Niederauer said he sensed that volumes, while relatively healthy, were below the levels which would indicate that investors had regained confidence in the fundamentals of the market. “I think we’re waiting for another rally, in my opinion, in around June and July,” he said.
He said a summer rally would be a six to nine-month leading indicator of economic recovery and that by April 2010 the global economy would look much healthier.
The benchmark S&P 500 index rose by 8.5 per cent in March, its best month since October 2002, leading some bulls to predict that the recovery had arrived
As Barry and Larry and Benny pontificate that things can only get better we are reminded that things have in fact been worse. After all its' only been 54 years since consumer prices showed an annual decline and a paltry 64 years since industrial production collapsed as fast.
However, don't panic, green shoots abound ... especially in the worse case scenario of the stress tests that the Federales have been threatening to share with us (end of April ... no...no...make that 'early' May):Per Bloomberg, the baseline forecast projected a 2 percent economic contraction and an 8.4 percent jobless rate in 2009, followed by 2.1 percent growth and 8.8 percent unemployment in 2010; an “alternative more adverse” scenario had a 3.3 percent contraction in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth and 10.3 percent jobless in 2010.
Pay no mind that the Federales protest that they aren't all completed yet even though Goldie says they did theirs' in 4 days.
Focus rather on what Richard Fisher president of the Dallas Fed said on April 8th: 'The U.S. economy probably shrank in the just-ended first quarter of 2009 at a rate similar to the 6.3 percent annual decline posted in the fourth quarter of 2008... no timeline for a potential recovery'.
If Fisher is correct, anything worse than a 2.3% average contraction over Q2-Q4 2009 would put us under the worse case stress test scenario. That would be (optimistically) consistent with today's beige book : overall economic activity either contracted or remained weak but five of the twelve Districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.
The most bullisht spin is its' getting worse but at a slower pace.
As far as unemployment, well, the 'worse-case' is 8.9 and this month we jumped from 8.1 to 8.5. If the pace of decline is 'moderating' we jump to around 8.9 in May... if things are getting worse at a slower pace we break 8.9 in June.
The key is to examine continuing claims, they have gained for 12 consecutive weeks...hitting a record high for 10 straight weeks although the labor force is of course larger than it was for the previous record... because as stated by Ian Sheperdson, chief U.S. economist at High Frequency Economics, "Claims are typically one of the very first indicators to signal economic recovery, and there is no sign of that in the data yet."
When the Federales come out with their guide book prior to releasing the actual stress test results (aggregate? individually? euphemistically?) chances are their best case will be the worst case.
Gun to head, the most logical conclusion a discerning observer will be able to gather from this 'American Idolatry' competition? - some banksters are more equal than others.
Federales: Come off it Mr. Market you can’t win you know! Look, there’s no point in lying down in the path of progress!
Mr.Market: I’ve gone off the idea of progress it’s overrated.!
Federales: But you must realize that you can’t lie in front of the bulldozers indefinitely!
Mr.Market: I’m game—we’ll see who rusts first.
Wed Apr 15, 2009 2:25pm EDT
WASHINGTON, April 15 (Reuters) - The U.S. government will release some results of its bank stress tests in May as it tries to diagnose problems and stabilize the ailing banking sector, the White House said on Wednesday.
"Early in May, you will see in a systematic and coordinated way the transparency of determining and showing to all involved some of the results of these stress tests," White House spokesman Robert Gibbs said.
The tests will assess how much of a "capital cushion" the banks are likely to need to stay healthy, given the current economic environment, he said.
"Our hope is that banks that are not healthy, or need help, will first and foremost seek that help privately, and then we'll take steps from there to assist them," Gibbs said.
The tests are "a part of a longer process toward bringing some stability to the financial system," he said. U.S. regulators are preparing a guide to explain to the public the bank stress tests and how to interpret the results, sources have told Reuters.
Bloomberg: The regulators plan to publish the so-called white paper within the next two weeks, ahead of the release of results by early May, in an effort to bolster credibility in the process.
(From 'Chapter 42 of The Decline and Fall of America', Print Edition: 2098.
According to Geithner, the idea for The Federales' Guide To Reality came to him whilst he was hitchhiking around New York. He was lost, unable to communicate with the natives, which drove him to purchasing beer and lying in a field in the middle of Central Park, pondering the nature of his ineffectual guide book and thinking that if somebody would write The Federales' Guide To Reality he would be “off like a shot”. -AM)
(That's quite a magic trick... reducing your tax rate to 1%. Although in the disclaimer one might deduce that Intel is guessing as to what the 'result' of audits might be. It's amazing what these companies can pull out of the grab bag.If you recall Goldie did something similar for 2008 , a press release at the time stated: GS expects to pay $14 million in taxes worldwide for 2008 compared with $6 billion in 2007. The company’s effective income tax rate dropped to 1 percent from 34.1 percent.However for Intel this is a one-quarter 'jam job' for further in the release it states, Full -Year 2009 Tax rate: Approximately 24 percent for the second, third and fourth quarters. Maybe they should hire some CPAs from Goldie.-AM)
From Intel's 1Q report:
INCOME BEFORE TAXES 652 million Provision for taxes 5 million NET INCOME 647 million
The effective tax rate was 1 percent, lower than the expectation of approximately 27 percent, driven primarily by settlement of various federal and state tax matters related to prior years and a higher percentage of profits in lower tax jurisdictions.
The tax rate expectation is based on current tax law and current expected income. The tax rate may be affected by the jurisdictions in which profits are determined to be earned and taxed; changes in the estimates of credits, benefits and deductions; the resolution of issues arising from tax audits with various tax authorities, including payment of interest and penalties; and the ability to realize deferred tax assets.
Due to continued economic uncertainty and limited visibility, Intel is not providing a revenue outlook at this time. For internal purposes, the company is currently planning for revenue approximately flat to the first quarter.
(So Smells Fargo and Goldie come out with boffo results that are immediately celebrated by Bubblevision and Hee Haw but upon closer inspection generate skepticism. What a shock. Still you have to be impressed by Goldie's ability to get their equity pumped up to $130 so they could get more bagholders to dilute their exixting commons at a 'discount' of $123. At last glance it looks like these new bagholders will be down almost 10% on the day. Ah Goldie, no one does it half as good as you, baby you're the best....-AM)
April 14 (Bloomberg) By Christine Harper and Michael J. Moore
Goldman Sachs Group Inc. headed for the biggest decline in almost two months in New York trading after Standard & Poor’s said the bank’s better-than-estimated earnings may not be sustainable.
First-quarter profit of $1.81 billion was concentrated in Goldman Sachs’s fixed-income trading business, the rating company said in a report today. S&P left in place its negative outlook on the New York-based firm’s credit rating of A.
“Coupled with persisting weak economic conditions and capital markets turmoil, we believe it would be premature to conclude that a sustained turnaround” in Goldman Sachs’s financial performance is under way, S&P wrote.
“People are questioning the sustainability of the first- quarter results,” said Roger Freeman, an analyst at Barclays Capital in New York who rates Goldman Sachs stock “neutral.” At the current share price, “you’re basically paying for an earnings recovery that is not guaranteed yet.”
(Oh banksters, you're good enough, smart enough and doggone it the Federales like you! -AM)
April 12, 2009 at 11:09 AM Huffington Post By Sam Stein
With the banking industry suffering from a crisis in confidence as much as liquidity, Paul Krugman says the Treasury Department will likely sugarcoat the stress test it is applying to the banks so that all of them are deemed solvent.
"This stress test, I have to say, it is sounding like a class of self-esteem: 'You are all wonderful, each in your own way,'" said the Nobel Prize winning economist. "I don't think they are going to let anybody fail."
Appearing on ABC's This Week, Krugman was prompted by a remark from host George Stephanopoulos, who noted that the political (and actual) capital being afforded to the Obama administration was running out.
"Politically, you cannot get more money for the TARP and the second stimulus plan," said Stephanopoulos. "That would then lead to the temptation in the Treasury Department to sugarcoat what they are going to see from the banks, so that they don't have to ask for more money."
Wells Fargo & Co., the second- biggest U.S. home lender, may need $50 billion to pay back the federal government and cover loan losses as the economic slump deepens, according to KBW Inc.’s Frederick Cannon.
KBW expects $120 billion of “stress” losses at Wells Fargo, assuming the recession continues through the first quarter of 2010 and unemployment reaches 12 percent, Cannon wrote today in a report. The San Francisco-based bank may need to raise $25 billion on top of the $25 billion it owes the U.S. Treasury for the industry bailout plan, he wrote.
First-quarter net income rose 50 percent to about $3 billion, Wells Fargo said last week in announcing preliminary results that topped the most optimistic Wall Street estimates and sparked a 32 percent jump in the stock. The bank attributed the profit to a surge in mortgage originations and revenue from Wachovia Corp., acquired in December. Full results are scheduled for April 22.
“Details were scarce and we believe that much of the positive news in the preliminary results had to do with merger accounting, revised accounting standards and mortgage default moratoriums, rather than underlying trends,” wrote Cannon, who downgraded the shares to “underperform” from “market perform.” “We expect earnings and capital to be under pressure due to continued economic weakness.”
Wells Fargo raised its provision for loan losses by $4.6 billion in the quarter, below Cannon’s estimate of $5.4 billion. FBR Capital Markets analyst Paul Miller wrote after the announcement last week that he expected a $6.25 billion increase.
Net charge-offs were $3.3 billion in the quarter, compared with $2.8 billion in the previous period at Wells Fargo and $3.3 billion at Wachovia. The current numbers are artificially low because consumers received tax refunds and a there was a moratorium on some mortgage defaults, wrote Cannon, who predicts a “re-acceleration” of charge-offs in the second quarter.
The ability of Wells Fargo and 18 other U.S. banks to withstand further economic deterioration is being determined by the government’s stress tests, which will be completed by the end of April. Treasury Secretary Timothy Geithner expects that some lenders will require “large” amounts of capital.
While Wells Fargo is likely to pass the test, regulators may “push for higher capital levels,” wrote Credit Suisse analyst Moshe Orenbuch in New York, who initiated the shares with a “neutral” rating today.
“Given rising unemployment, continued home price declines and general macroeconomic headwinds, WFC’s consumer and commercial portfolios remain at risk for meaningfully higher credit losses over 2009 and 2010,” Orenbuch wrote.
(Time to take the frickin' shaguar to what will be one heck of a mojo rally. -AM)
Published: April 12 2009 18:05 LEX column Financial Times
Banks remain riddled with toxic assets. This is true however much one chooses to ignore it. One reason for the recent rally in bank stocks was a shift in focus from balance sheets towards the sector’s renewed earnings power. Fair enough – banks are making oodles of cash from strong flows and a steep yield curve, and will probably muddle though the upcoming results season.
But the bigger issue for investors is whether banks’ new earnings potential can counteract the inevitability of further writedowns. That depends on forecasts for revenues and the extent, and timing, of losses. Oliver Wyman and Morgan Stanley have taken a stab at estimating the former. They reckon global wholesale banking revenues in 2010 will be about $220bn, helped by “volatility products” such as foreign exchange, fixed income, money markets and commodities. And thank goodness: the same research estimates that 60 per cent of Credit Suisse’s 2006 revenues, for example, were from products the Swiss bank will probably not even touch in future, such as highly structured derivatives.
How does that compare to losses? Many, including the IMF, expect total global credit losses to approach $4,000bn as the economic slowdown means that more traditional forms of lending become toxic. Assuming banks account for three quarters of losses, and they have already torched $915bn, according to Bloomberg, that equates to 14-odd years of revenues (other things, such as capital ratios, being equal).
Some writedowns will turn up beyond the big wholesale banks, of course. And if the economy improves or a liquidity discount does prove to exist in some assets, estimates for losses will be far smaller. But on the flip side, $200bn-odd of forecast global revenues only takes banks back to 2005 levels. It would be a brave soul who thinks the sector will be let off that lightly. No wonder delaying writedowns for as long as possible – an even worse option – seems attractive.
(Bill Moyers' forum was apropos however I was a bit surprised to see this article in Barron's, I can't recall ever seeing something quite so incendiary there. Truer words have rarely been said. It is with continuing sadness that I watch this administration continue the tradition of America for,of, and by the banksters. Had hoped for much better. As a parent one of my principal objectives is to try and get my children to accept the consequences of their actions. Methinks that if Barry Dunham does not alter course then Mr.Black's comments that a destroyed presidency will be the consequence may prove to be prescient. -AM)
Barron's April 11, 2009 By JACK WILLOUGHBY
William Black calls them as he sees them, which is why we enjoy talking with him. Black, 57 years old, was a deputy director at the former Federal Savings and Loan Insurance Corp. during the thrift crisis of the 1980s, and now serves as an associate professor, teaching economics and law at the University of Missouri, Kansas City. At FSLIC, a government agency that insured S&L deposits, Black prevailed in showdowns with the powerful Democratic Speaker of the House, Jim Wright, and helped identify the infamous Keating Five, a group of U.S. senators (including Sen. John McCain, the Arizona Republican who lost his bid for the presidency in 2008) who tried to quash his attempt to close Charles Keating's Lincoln Savings & Loan. Wright eventually resigned amid unrelated ethics charges, and the senators were reprimanded for poor judgment. Keating went to jail for securities fraud.
Just how serious is this credit crisis? What is at stake here for the American taxpayer?
Mopping up the savings-and-loan crisis cost $150 billion; this current crisis will probably cost a multiple of that. The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.
So you are saying Democrats as well as Republicans share the blame? No one can claim the high ground?
We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure? If they are going to get any truthful investigation, the Democrats picked the wrong financial team. Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems. Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.
So you aren't a fan of the recently announced plan for the government to back private purchases of the toxic assets?
It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what's so appalling -- numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.
The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.
Geithner is mistaken when he talks about making deeply unpopular moves. Such stiff resolve to put the major banks in receivership would be appreciated in every state but Connecticut and New York. His use of language like "legacy assets" -- and channeling the worst aspects of Milton Friedman -- is positively Orwellian. Extreme conservatives wrongly assume that the government can't do anything right. And they wrongly assume that the market will ultimately lead to correct actions. If cheaters prosper, cheaters will dominate. It is like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement.
His plan essentially perpetuates zombie banks by mispricing toxic assets that were mispriced to the borrower and mispriced by the lender, and which only served the unfaithful lending agent.
We already know from the real costs -- through the cleanups of IndyMac, Bear Stearns, and Lehman -- that the losses will be roughly 50 to 80 cents on the dollar. (Put that one up on the wall next to the realization that over 5 trillion is still off balance sheet amongst the top money center banks. -AM)The last thing we need is a further drain on our resources and subsidies by promoting this toxic-asset market. By promoting this notion of too-big-to-fail, we are allowing a pernicious influence to remain in Washington. The truth has a resonance to it. The folks know they are being lied to.
I keep asking myself, what would we do in other avenues of life? What if every time we had a plane crash we said: 'It might be divisive to investigate. We want to be forward-looking.' Nobody would fly. It would be a disaster.
We know that with planes, every time there is an accident, we look intensively, without the interference of politics. That is why we have such a safe industry.
Summarize the problem as best you can for Barron's readers.
With most of America's biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale. (Ouch.-AM)
These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First there needs to be a clearing of the air -- a Pecora-style fact-finding mission conducted without fear or favor. [Ferdinand Pecora was an assistant district attorney from New York who investigated Wall Street practices in the 1930s.] Then, we need to gear up to pursue criminal cases. Two years after the market collapsed, the Federal Bureau of Investigation has one-fourth of the resources that the agency used during the savings-and-loan crisis. And the current crisis is 10 times as large.
There need to be major task forces set up, like there were in the thrift crisis. Right now, things don't look good. We are using taxpayer money via AIG to secretly bail out European banks like Société Générale, Deutsche Bank, and UBS -- and even our own Goldman Sachs. To me, the single most obscene act of this scandal has been providing billions in taxpayer money via AIG to secretly bail out UBS in Switzerland, while we were simultaneously prosecuting the bank for tax fraud. The second most obscene: Goldman receiving almost $13 billion in AIG counterparty payments (He's half right, this was a doublemint bailout .. they 'returned' the swaps and kept the collateral to walk away with no haircut. -AM)after advising Geithner, president of the New York Fed, and then-Treasury Secretary Henry Paulson, former Goldman Sachs honcho, on the AIG government takeover -- and also receiving government bailout loans.
What, then, is staying the federal government's hand? Have the banks become too difficult or complex to regulate?
The government is reluctant to admit the depth of the problem, because to do so would force it to put some of America's biggest financial institutions into receivership. (Oft-repeated on this blog: failure to liquidate the insolvent banksters has resulted in the liquidation of large parts of the productive economy.-AM) The people running these banks are some of the most well-connected in Washington, with easy access to legislators. Prompt corrective action is what is needed, and mandated in the law. And that is precisely what isn't happening.
The savings-and-loan crisis showed that, too often, the regulators became too close to the industry, and run interference for friends by hiding the problems.
Can you explain your idea of control fraud, and how it applies to the current banking and the earlier thrift crisis?
Control fraud is when a seemingly legitimate corporation uses its power as a weapon to defraud or take something of value through deceit.
In the savings-and-loan crisis, thrifts engaged in control frauds in order to survive. Accounting trickery proved to be the weapon of choice. It is at work today with the banks, and it is their Achilles heel. You report that you are highly profitable when you engage in accounting-control fraud, not only meeting but exceeding capital requirements. These accounting frauds create huge bubbles, which in turn create large bonuses, which in turn lead to huge losses.
Why then is there so much smoke and so little action?
First, they are inundated by the problem. They are trying to investigate the major problems with severely depleted staffs. Honestly. We have lost the ability to be blunt. Now we have a situation where Treasury Secretary Geithner can speak of a $2 trillion hole in the banking system, at the same time all the major banks report they are well-capitalized. And you have seen no regulatory action against what amounts to a $2 trillion accounting fraud. The reason we don't see it -- aren't told about it -- is that if they were honest, prompt corrective action would kick in, and they would have to deal with the problem banks.
Are there any parallels between the current crisis and the savings-and-loan crisis that give you hope?
Of course. Objectively, our case was even more hopeless in the S&L debacle than in the current crisis. If we were able to do it in such an impossible circumstance back then, we have reason for hope in the current crisis. I know how easily things can get off course and how quickly things can turn back again. (Let's hope so. -AM) The thrift crisis went through several lengthy courses and distortions before it finally was resolved under the leadership of Edwin Gray, the chairman of the Federal Home Loan Bank Board, which oversaw FSLIC.
We went through almost a decade of cover-ups by a Washington establishment intent on helping thrift owners. Back then, we had the Justice Department threatening to indict Gray, the head of a federal agency, for closing too many thrifts. Next, there were those so-called resolutions, where the regulators worked day and night -- to create even bigger problems for the FSLIC. Years later, these so-called resolution deals had to be unwound at great expense by closing down even larger failures. Or how about the bill to replenish the depleted thrift-insurance fund that was blocked and delayed by then-Speaker of the House, Texas congressman Jim Wright?
You say the evidence of a breakdown in the regulatory structure comes from the fact that America avoided an earlier subprime crisis in the 1990s.
Exactly. Why had no one heard of the subprime crisis back in 1991? Because America's regulators also faced down the crisis early. The same thing happened with bad credits being securitized in the secondary market. Remember the low-doc or no-doc mortgages done by Citibank? Well, the problem didn't spread -- because regulators intervened.
Obama, who is doing so well in so many other arenas, appears to be slipping because he trusts Democrats high in the party structure too much.
These Democrats want to maintain America's pre-eminence in global financial capitalism at any cost. They remain wedded to the bad idea of bigness, the so-called financial supermarket -- one-stop shopping for all customers -- that has allowed the American financial system to paper the world with subprime debt. Even the managers of these worldwide financial conglomerates testify that they have become so sprawling as to be unmanageable.
What needs to be done?
Well, these international behemoths need to be broken down into smaller units that can be managed effectively. Maybe they can be broken up the way that the Standard Oil split up back in the early 1900s, through a simple share spinoff.
The big problem for the last decade is that we have had too much capacity in the finance sector -- too many banks have represented a drain on our talent and resources. All these mergers haven't taken capacity out of the system. They have created even bigger banks that concentrate risk to the taxpayer, and put off dealing with problems.
And a new seriousness must be put into regulation. We don't necessarily need new rules. We just need folks who can enforce the ones already on the books.
The bank-compensation system also creates an environment that leads to mismanagement and fraud. No one has to tell someone they have to stretch the numbers. It is all around them. It is in the rank-or-yank performance and retention systems advocated by top business executives. Here, the top 20% get the bulk of the benefits and the bottom 10% get fired. You don't directly tell your employees you want them to lie and cheat. You set up an atmosphere of results at any cost. Rank or yank. Sooner rather than later, someone comes up with the bright idea of fudging the numbers. That's big bonuses for the folks who make the best numbers. It sends the message -- making the numbers is what is most important. There is a reason that the average tenure of a chief financial officer is three years.
Compensation systems like I have just described discourage whistleblowing -- the most common way that frauds are found in America -- because the system draws upon the cooperation of everyone.
The basis for all regulation and white-collar crime is to take the competitive advantage away from the cheats, so the good guys can prevail. We need to get back to that. (Amen brother Black. Glad Barron's had the guts to print this.-AM)
(For those of you keeping score at home this is what the Federales had the audacity to commit to on February 9th... -AM)
The Financial Stability Plan will institute a new era of accountability, transparency and conditions on the financial institutions receiving funds...Increased Transparency and Disclosure: Increased transparency will facilitate a more effective use of market discipline in financial markets. The Treasury Department will work with bank supervisors and the Securities and Exchange Commission and accounting standard setters in their efforts to improve public disclosure by banks. This effort will include measures to improve the disclosure of the exposures on bank balance sheets. In conducting these exercises, supervisors recognize the need not to adopt an overly conservative posture or take steps that could inappropriately constrain lending.
(And of course we all now know what has followed ... -AM)
On April 8th (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 source, speaking anonymously because the Treasury has not made a final decision on what to disclose, said officials do not want any test results released before the earnings season wraps up for most U.S. banks on April 24.
The Treasury is still apparently mulling just how to unveil the results as well, considering an "aggregate" release as opposed to an institution-specific result.
and today, Bloomberg : The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.
(Obviously the only thing transparent here is the steady drumbeat of disingeniousness. As succinctly put by unnamed FDIC staffers : It's a sham. -AM)
(Smells Fargo is makin' moolah hand over fist... circle smirkin' rally monkeys rejoice ... recession will soon end...
Wells Fargo wowed the market Thursday but its good earnings news won't be repeated.
Wells Fargo ( WFC - news - people ) benefited from factors that were general to the industry, as well as specific to the firm. "The strength of its revenue items, such as net interest income and fee earnings, was solid," analyst Frederick Cannon of KBW says. "Wells was also helped by the Wachovia deal, and was able to benefit from credit costs this quarter because of delinquent loans from Wachovia that were already marked down, and in terms of accounting that helped considerably."
Cannon was surprised that Wells has yet to take a significant charge from its purchase of Wachovia, which helped its capital position in the first quarter. "They initially had said the charge would be lower than $10.0 billion, but up to today they've only taken $77.0 million," Cannon said.
More from Housing Wire:
“The shocker was that they only had only $3.3 billion [in] charge offs,” said Whitney Tilson of hedge fund manager T2 Partners, in a CNBC interview Wednesday afternoon. “It’s weird, because in Q4 Wachovia and Wells Fargo together had $6.1 billion in charge-offs, and then in a quarter in which things were terrible, those charge offs fell by 50 percent … They’re going to have a lot of losses over the next couple of years, [and] anyone baselining at $3.3 billion in charge offs per quarter is crazy.”
More from WSJ:
Ramsden of Goldman Sachs noted that Wells Fargo is still thoroughly under the government’s thumb unless it can pull off another rich stock offering. “On capital, Wells Fargo expects [tangible common equity] ratio to improve to above 3.1% in 1Q. This is clearly a positive although we would note that Tier 1 ratio excluding TARP is still likely to be around 6%, which would make it hard for Wells Fargo to disentangle from the government without a capital raise.”
Wells Fargo joined a clutch of banks who declared their intention to pay back TARP capital quickly: Goldman Sachs, J.P. Morgan, PNC Financial Services, U.S. Bancorp and others have all sworn to throw off the yoke of government control as soon as possible.
Wells Fargo is not as well-positioned to pay back TARP capital as those banks, however. Wells’ key ratio of tangible common equity to tangible assets — a measure of a bank’s capital strength — is only 2.38, the lowest ratio of any of the big banks that have publicly committed to paying back TARP funds
More from economicpopulist.org and bankimplode.com:
Wells Fargo CFO Howard Atkins discusses the banks $3 billion reported first quarter 2009 earnings. Atkins hypes the impact of mortgages to the bottom line, due to low interest rates and foreclosure selling no doubt, but shockingly admits at the 7:45 mark that with the writedowns that would have been required by Mark to Market the bank actually lost money on the quarter.
To put it another way, Wells Fargo made money because the government allowed them to play "let's pretend your assets are worth something".
(Oh and lastly how soon we all forget but on March 25th Moody's downgraded Smells Fargo...-AM)
Moody's on Wednesday cut Wells Fargo's senior debt rating to A1 from Aa3, its senior subordinated debt rating to A2 from A1, and the banking giant's junior subordinated debt rating to A3 from A1.
The rating agency cut Wells Fargo's preferred stock rating to B2 from A2. Wells Fargo's short-term rating was affirmed at Prime-1.
Wells Fargo Bank N.A.'s rating for deposits was lowered to Aa2 from Aa1, and its Prime-1 short-term rating was affirmed. Moody's bank financial strength rating, or BFSR, on Wells Fargo Bank N.A. was lowered to D+ from B.
All ratings have a stable outlook except for the BFSR and preferred stock rating, where the outlook is "developing" because of concerns that tight equity markets may spur U.S. government support for the San Francisco-based banking giant, which has assets of $1.3 trillion.
"The downgrades of the BFSR and the preferred stock ratings reflect Moody's view that Wells Fargo's capital ratios could come under pressure in the short-term, increasing the probability that systemic support will be needed," said Moody's.
The rating actions come as Moody's recalibrates some of the weights and relative importance attached to certain rating factors within its current bank rating methodologies. Capital adequacy, in particular, is taking on increasing importance in determining BFSRs in the current environment. Meanwhile, debt and deposit ratings are expected to reflect higher support assumptions for systemically important institutions during this global financial crisis.
The downgrade of Wells Fargo's BFSR to D+ from B reflects the increased probability of systemic capital support due to Moody's view that Wells Fargo's capital ratios could fall to comparatively low levels.
"The BFSR is driven by Wells Fargo's capital challenges, which are made more acute because U.S. banks' access to the equity market is shut or very limited at best," said Moody's. "This increases the likelihood of a capital initiative by the U.S. government to support Wells Fargo. The BFSR is intended to express an opinion about the likelihood of such an event."
Wells Fargo's comparatively low capital ratios -- especially its tangible common equity ratio -- result from its acquisition of Wachovia. In Moody's opinion, the amount of equity that Wells Fargo raised was modest in comparison to the amount and quality of assets it acquired from Wachovia.
Moody's does not expect Wells Fargo to generate sizable amounts of capital until the second half of 2010, at the earliest. "Wells Fargo will need to take provisions and merger expenses -- predominantly in 2009 and into 2010 -- against those Wachovia assets that were not marked down on Dec. 31, 2008," according to the rating agency.
Also, a challenging housing market and higher unemployment will result in higher loan-loss provisions for the legacy Wells Fargo portfolio, and additional charges beyond Wells Fargo's lifetime loss estimate of approximately 29% against the legacy Wachovia option-ARM portfolio cannot be ruled out.
(Please answer by choosing only one response per question:
Are you insolvent?
1) Yes 2) No 3) Don't know
Do you expect to be insolvent in the future?
1) Yes 2) No 3) Don't know
Do you know what insolvent means?
1) Yes 2) No 3) Don't know
Do you wish your results to remain anonymous?
1) Yes 2) Oh hell yes
THANK YOU FOR YOUR TIME.
LOVE, THE FEDERALES)
New York Post Last updated: 1:47 am April 8, 2009
By MARK DeCAMBRE
The stress tests the government are about to conduct on some of the nation's largest banks is being blasted by insiders at Sheila Bair's Federal Deposit Insurance Corp., who say it's a pointless exercise that's more sizzle than steak.
The FDIC's basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.
The tests are conducted by the Treasury Department and the Federal Reserve on the nation's 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase.
"It's a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn't actually work.
While specific details are still being worked out, the Treasury and Fed's tests are expected to determine how banks might perform under the assumption that unemployment ratchets up and overall economic conditions worsen beyond what the market has seen so far.
However, Bair and others argue that the remedial test won't be able to determine accurately how much each bank will need in the future.
These people say some banks found in solid shape today may later go to Uncle Sam hat in hand as the markets worsen. They also note that anything done now will largely be arbitrary.
Officials from the FDIC declined to comment.
The FDIC's panning of the stress tests highlights the growing rift between Bair and Treasury Secretary Tim Geithner over how to fix the ailing financial sector.
Many high-profile analysts already are voicing the concern that losses will pile up in areas most of Wall Street hasn't watched closely, such as residential and commercial loans that are currently on banks' balance sheets.
Banks can house these assets on their balance sheets at nearly their full value if they hold them to maturity. However, the credit crunch has made many of these loans worth far less. For example, market players said banks today will get anywhere from 60 cents to 80 cents on the dollar for option ARMs and home-equity loans they own.
Critics also argue that the stress test fails in comparison to other valuation methods such as Basel II, which took years to develop and was to serve as a global standard for assessing how much capital a bank should hold in relation to its risk.
"How is the Fed and the Treasury over a couple of weeks supposed to take a weird set of macroeconomic assumptions and come up with a number [for banks]?" one source asked.
The transparency of the test has also been called into question since expectations are that the Treasury won't disclose specifically which banks need more cash to remain stable and which will pass muster.
Treasury expects to release some of its findings at the end of April.