There was already plenty of reason to be skeptical about the so-called "stress tests", and even more reason to be skeptical about the bank earnings in the post-Mark-to-Market world, but this just confirms it.
(Reuters) – The U.S. Treasury Department is asking banks not to mention the regulatory "stress tests" as part of their first-quarter earnings results, according to a source familiar with government discussions.
...
In an attempt to assess banks' capital needs, the government is testing how they would fare under more adverse economic conditions than are expected. The markets are anxiously anticipating the results to see which firms get a clean bill of health and which firms will likely need more taxpayer help.
In the continuing saga of "What are they up to now?", comes this story from Huffpo about the Fed pumping foreign currency into the US money supply. In this way, US banks can pay their foreign obligations in foreign currency.
This is a new wrinkle in the regular currency swaps the Fed performs with foreign banks. Until now the Fed has held the foreign currencies on its balance sheet while the foreign banks pass the swapped US dollars to their financial institutions. According to the minutes of the March FOMC meeting, this is just a precautionary move and not indicative of other countries having any trouble meeting their foreign currency obligations.
The minutes also show that the Fed will be increasing their currency swap limits with the Bank of England, European Central Bank, Bank of Japan and Swiss National Bank. Here's what Jamie Galbraith had to say:
This may be the most important economic graph of the year:
Why? The above graph shows gasoline consumption in the US. The dotted blue line is April 2007-March 2008, the yellow line the remainder of 2008, and the chained red line this year's consumption.
Let us make a not unreasonable assumption that this recession is going to be somewhat "L" shaped or at least a Verizon-logo like elongated "V" with a very slow recovery after hitting bottom. Let's also assume optimistically that we are somewhere near the bottom of the cliff -- the inflection point of the "L" or "V".
How much of a recovery we get -- or worse, if we get a double-dip "W" recession -- is likely to be substantially determined by the price of Oil later this year.
You're gonna love this one, according to the New York Times as the Treasury laboriously pours over banks books, all of the banks are passing their stress tests.
They are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.
That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say.
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".
Elizabeth Warren, Congressional Oversight Panel Chair for TARP funds did not say Paulson lied. But to fit it in the title of the Instapopulist, I am summing it up for you.
Below is a Bloomberg interview where when COP cranked the numbers, they discovered for every dollar given in TARP funds, on the day it was given, the United States received 66¢ in shares, warranties. In other words, former Treasury Secretary Hank Paulson told the panel one thing, that the funds with a direct 1:1 ratio exchange for stocks and warrenties and the reality was another, by the numbers. It was a $78 Billion dollar subsidy with no return, straight out of the box and this is the actual day of transaction. In other words a $78 billion giveaway to the banks.
I can't speak for all of the readers, but all of the commentators here at EP are frustrated and angry about the neverending string of bad plans enacted to deal with the financial crisis. Well, there is something we can do besides commisserate with each other.
Here is the link to this new grass roots organization, which has been formed in response to the non-sensical, repetitive bank bailouts. Demonstrations will be happening all across the country this Saturday, you may want to see where the nearest is to your location. My local organizer has asked that we bring cell phones and video cameras to capture our experience. The videos can be submitted to Bill Moyers who will be doing a montage of the events for his program. The organization is also planning on presenting its own montage and list of concerns and demands to Congress.
I have been reviewing Treasury's Framework for Regulatory Reform and have reviewed several articles about the reforms. In my opinion, something is missing. Some of the proposals offered are good such as increased oversight of the OTC derivatives market or requiring hedge funds over a certain size to register. These proposals should help.
However, no where in the Framework does it say that financial conglomerates were too big and must be made smaller. The proposal for a systemic risk monitor/regulator is troubling because why add another regulatory body to the current web of regulators. What is needed is hard rules, better yet Federal laws, not another regulatory body.
Recent comments