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It's Official, the "Stress Test" Was Just Theater
We are getting reports now of what Timothy "Eddie Haskell" Geithner's stress test has determined, and it's clearly not reality.
This is a damn joke.
You have one "oh my God" number, for Bank of America, and it's about 50% of their market cap, but Citi, which is clearly in much worse shape is somehow better capitalized by a factor of 6.
This is simply not true, even after BoA's disastrous acquisition of Merrill Lynch and Countrywide.
Also note this joint statement from the Treasury Department, Federal Reserve, FDIC, and Office of the Comptroller of the Currency, which, to my untutored eye, appears to say that they are going to go with their cockamamie scheme to claim that capital is increased by swapping preferred for common stock.
It's an accounting trick, and what's more, it's one where the taxpayer has just taken a second haircut.
They are making great theater by pretending to talk tough and giving a month for the banks that need to to present a plan to raise capital, and 6 months to have this plan in action, but it's all a lie, since the plan may very well be, "suck on this, taxpaying rubes".
I disagree with former IMF chief economist Simon Johnson's analysis, which is that they are selectively leaking to create confusion in order to keep people from looking at whether the test was too hard on the banks.
I think that his analysis is incomplete. The "stress test" begins and ends with public relations. It's a sham, and it has always been a sham, intended to show that the government was serious about reigning in the big banks, without actually engaging in the necessary actions, like seizure of insolvent institutions that would actually be required for it to work.
Cross posted from 40 Years in the Desert.
| Bank | Needs Capitalization | Amount |
| Bank of America | Yes | $34 B |
| Wells Fargo | Yes | $15B |
| Citigroup | Yes | $5B |
| Morgan Stanley | Yes | $1-2B |
| Goldman | No | |
| MetLife | No | |
| JP Morgan Chase | No | |
| Bank of NY Mellon | No | |
| American Express | No | |
| Capital One | No | |
| BB&T | No |
This is a damn joke.
You have one "oh my God" number, for Bank of America, and it's about 50% of their market cap, but Citi, which is clearly in much worse shape is somehow better capitalized by a factor of 6.
This is simply not true, even after BoA's disastrous acquisition of Merrill Lynch and Countrywide.
Also note this joint statement from the Treasury Department, Federal Reserve, FDIC, and Office of the Comptroller of the Currency, which, to my untutored eye, appears to say that they are going to go with their cockamamie scheme to claim that capital is increased by swapping preferred for common stock.
It's an accounting trick, and what's more, it's one where the taxpayer has just taken a second haircut.
They are making great theater by pretending to talk tough and giving a month for the banks that need to to present a plan to raise capital, and 6 months to have this plan in action, but it's all a lie, since the plan may very well be, "suck on this, taxpaying rubes".
I disagree with former IMF chief economist Simon Johnson's analysis, which is that they are selectively leaking to create confusion in order to keep people from looking at whether the test was too hard on the banks.
I think that his analysis is incomplete. The "stress test" begins and ends with public relations. It's a sham, and it has always been a sham, intended to show that the government was serious about reigning in the big banks, without actually engaging in the necessary actions, like seizure of insolvent institutions that would actually be required for it to work.
Cross posted from 40 Years in the Desert.
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This really really sucks.
May 7, 2009 12:50 AM | Reply | Permalink
I think one important thing that needs to be added is that the rules were finally set up to regulate how TARP banks can return the money (hint: not so fast!).
Which makes your point only stronger.
May 7, 2009 8:22 AM | Reply | Permalink
You point to an underlying issue here...or issues.
I do not know enough about ground water to really debate the issue of pollution within that context.
How the hell do I know whether NASA deserves more money?
They won't even let me have an account at a bank in the first place. ha
May 7, 2009 3:25 PM | Reply | Permalink
Johnson, of course is right. Just like all of us who said invading Iraq is totally unjustified and a huge mistake that will cost trillions, waste lives, and weaken American Security. He is right in the same way that those of us who thought eliminating all the New Deal regulations on Wall Street was a catastrophe waiting to happen. But nobody is listening and the corporate media will drown him out with the officially approved message about the stress tests and the recovery. Another major factor why nobody is listening is because our political leadrs are weak, craven, and cowardly souls who are far more concerned with pleasing their masters (the elite in the world of business and finance) than in helping the nation get back on it's feet.
May 7, 2009 3:27 PM | Reply | Permalink
BTW, it turns out that BoA can "recapitalize" by just converting the Taxpayer's preferred shares to common stock....No muss, no fuss...and the Fix is in.
May 7, 2009 5:08 PM | Reply | Permalink
Another ,less colorful , way of putting that would be :
Your initial incredulity was understandable in the context of 8 years of Bush lies.Or would be if the Bush liars were still in charge.
They aren't.
Before we vote the new team guilty let's wait until we hear the evidence.
May 7, 2009 8:33 PM | Reply | Permalink
Some banks are more astute at shifting their dodgy debt off-shore or off-balance sheet than others.
May 7, 2009 6:59 PM | Reply | Permalink