Posted on 05/08/2009 3:55:30 PM PDT by rabscuttle385
Worst-Case Capital Shortfall of $75 Billion at 10 Banks Is Less Than Many Feared; Some Shares Rise on Hopes Crisis Is Easing.
BY DAVID ENRICH, ROBIN SIDEL and DEBORAH SOLOMON
The federal government projected that 19 of the nation's biggest banks could suffer losses of up to $599 billion through the end of next year if the economy performs worse than expected and ordered 10 of them to raise a combined $74.6 billion in capital to cushion themselves.
The much-anticipated stress-test results unleashed a scramble by the weakest banks to find money and a push by the strongest ones to escape the government shadow of taxpayer-funded rescues.
The Federal Reserve's worst-case estimates of banks' total losses and capital shortfalls were smaller than some had feared. Optimists interpreted the Fed's findings as evidence that the worst is over for the industry. But questions remain about the stress tests' rigor, in part since the Fed scaled back some projected losses in the face of pressure from banks.
The government's tests measured potential losses on mortgages, commercial loans, securities and other assets held by the stress-tested banks, ranging from giants Bank of America Corp. and Citigroup Inc. to regional institutions such as SunTrust Banks Inc. and Fifth Third Bancorp. The government's "more adverse" scenario includes two-year cumulative losses of 9.1% on total loans, worse than the peak losses of the 1930s.
Treasury Secretary Timothy Geithner said Thursday that he is "reasonably confident" that banks will be able to plug the capital holes through private infusions, alleviating the need for Washington to further enmesh itself in the banking system.
Banks also said they will consider selling businesses or issuing new stock to meet the toughened capital standards.
(Excerpt) Read more at online.wsj.com ...
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However, the DemocRATS did get some good news today when we found that ONLY just over a half of a million Americans lost their jobs last month. Don’t you just love BO’s “hope and change” gig? This “new direction” stuff is sumpin’ else. 69% of “americans” are loving it if you believe the “polls.”
Mr. Black, a former regulator, says that the $599 billion is incorrect, that $2.5 trillion of losses are coming up, and that the stress tests are deliberately misleading:
The Big Lie: Stress Test Optimism Just Wall St. Propaganda, Former Bank Regulator Says
Posted May 08, 2009 12:12pm EDT by Aaron Task in Newsmakers, Recession, Banking
Related: BAC, C, JPM, WFS, MS, GS, XLF
Results of the stress test brought a collective sigh of relief from Washington D.C. to Wall Street Friday, and stocks were rallying again on a growing sense the financial crisis has past.
Don’t you believe it, says William Black, an Associate Professor of Economics and Law at the University of Missouri - Kansas City.
“It’s in the interest of the financial community to send this propaganda out,” Black says. “It’s remarkable not that they do it but that it still works.”
In other words, this isn’t the first time we’ve been told “the crisis is over” and that “banks are well capitalized” - and probably won’t be the last.
The professor and former financial regulator foresees another wave of foreclosures and future bank losses of more than $2.5 trillion vs. the government’s $599 billion estimate.
Simply put, the stress tests weren’t strong enough to be considered “wimpy,” Black says. Furthermore, Fannie Mae, Freddie Mac, AIG and IndyMac were deemed to have “passed” much more stringent government stress tests before their respective failures, he notes, recalling the grim history:
* Fannie and Freddie: In July 2008, Treasury Secretary Paulson testified that Fannie and Freddie were “adequately capitalized” under the test. In August 2008: “even in [Freddie’s] most severe stress tests, [show] losses ... less than $5 billion.” Actual losses: 20 to 40 times greater.
* AIG: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those [CDS] transactions.” AIG claimed in 2008 “Using a severe stress test ... losses could go as high as $900 million.”? Actual losses: 200 times greater.??
* IndyMac: Sold over $200 billion of “liar’s loans.” Actual losses: 160 times greater than its tests.
* Rating Agencies: Their stress tests gave AAA ratings to toxic waste. Actual losses: more than an order of magnitude greater.
?”The examinations and stress tests are shams — always precise, always farblondget,” Black claims.
So while others are celebrating the end of the crisis, ask yourself this: If the government sees up to $599 billion in additional bank losses, why are they requiring banks “only” raise $75 billion? That suggests the government thinks the banking sector is overcapitalized by $525 billion.
“Once people learn they’re being lied to, they react very badly,” Black says. “And of course this is not the first lie.”
Maybe you really can fool some of the people all of the time.
i’ve got a $15,000 credit card 3% APR “loan” from citibank, i routinely use my bank of america to pay for things and pay for it 30 to 60 days later, and first union/wachovia/corestates (which was swallowed up by wells fargo) has been losing total market share for years in the philadelphia area despite buying up its competitors (to supposedly gain market share). who gives a rat’s ass about the big banks? i certainly don’t use any of them for my personal checking account.
That makes two of us.
I think there is a second wave coming, where Gov’t Jobs will shield the actual situation but the reality will sink in - We are spending now, for inherently unproductive, non-investment employment to the effect of degrading the currency and kicking the unemployment can down the road for a Quarter or two.
Not me, that's for sure.
What collection of fairy tales did this story come from? I’m somewhat perplexed at only a half billion dollars of losses when the top six bank holders of derivatives were stuck with derivatives that used to be worth 200 trillion dollars. I’m astounded that someone has been able to sort through all of the mortgages, student loans and credit card debt that was securitized and come up with only a half billion dollars of losses.
I think I need a new BS meter. Mine just exploded.
Black is speaking truth - stress test provided false cover...
Ummm, do you get the feeling they're just making it up?
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