Six of the 19 US "Stress Test" Banks Fail

[Cael]

Stress Tests: The Same Clever Financial Engineering That Led To The Crisis In The First Place?

05/ 2/09 12:06 AM

Disclosures that at least six of the 19 big banks undergoing stress testing have been ordered to acquire more capital has not assuaged critics who contend that the tests are dangerously mild.

"This stress test is the equivalent of testing the Brooklyn Bridge by running a single heavy truck on it," Nassim Nicholas Taleb, a scholar of risk and chance at Polytechnic Institute of New York University, told the Huffington Post. "Bring engineers for this stress test, not the economists who failed us."

"The fact that six banks failed the stress test is more indicative of the weakness of the banks than the strength of the stress test. Most analysts thought the stress test was pretty wimpy," said Henry Blodget, president of Cherry Hill Research and CEO/Editor in Chief of Silicon Alley Insider. "If a good number of banks hadn't failed, people would have dismissed the stress tests as propaganda. So from the government's perspective, I'd say they were about right (if any more banks had failed under those wimpy assumptions, people might have been terrified.)"

Two of the institutions told by federal regulators to expand capital in order to be able to absorb additional losses are Citigroup Inc. and Bank of America Corp. The other four have not been publicly identified.

The testing was first announced February 10. The departments and agencies involved in the testing include the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board.

On February 23, the Treasury announced that bank testing would begin two days later to ascertain whether the nation's 19 biggest banks had enough capital to weather "a more challenging economic environment." If not, the "institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government," according to the Treasury announcement. Federal officials sought to soften the stigma associated with finding that a bank required a "capital buffer" from the government, noting that "this additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers."

The results of the tests will be released next Thursday.

Critics of the stress tests argued almost from the moment they were announced that federal regulators had set standards too low, and that the regulatory staff was not equipped to deal with the complexities of these massive, multi-national institutions.

Full text:

Stress Tests: The Same Clever Financial Engineering That Led To The Crisis In The First Place?

[142857]

Interesting stuff.

Either way I think we'll see confidence return (in the US, not so much here) for the summer before the Titanic takes another nosedive.

[Cael]

Interesting stuff.

Either way I think we'll see confidence return (in the US, not so much here) for the summer before the Titanic takes another nosedive.

Yes, people still have a blind faith in Obama, and if he says things have turned around the more simple minded will believe him.

[Ulster-Lad]

Yes, people still have a blind faith in Obama, and if he says things have turned around the more simple minded will believe him.

Obama is trying to Nationalise the banks. So then he will have the automakers and banks.

Norman Matton Thomas (November 20, 1884 - December 19, 1968) was a leading American socialist, pacifist, and six-time presidential candidate for the Socialist Party of America. He was ordained as a Presbyterian minister in 1911. As a candidate for President of the US, Norman Thomas said, in a 1944 epoch speech:

"The American people will never knowingly adopt socialism. But, under the name of "liberalism", they will adopt every fragment of the socialist program, until one day America will be a socialist nation, without knowing how it happened." He went on to say: "I no longer need to run as a Presidential Candidate for the Socialist Party. The Democratic Party has adopted our platform."

[Cael]

Obama is trying to Nationalise the banks. So then he will have the automakers and banks.

Norman Matton Thomas (November 20, 1884 - December 19, 1968) was a leading American socialist, pacifist, and six-time presidential candidate for the Socialist Party of America. He was ordained as a Presbyterian minister in 1911. As a candidate for President of the US, Norman Thomas said, in a 1944 epoch speech:

What makes you say he is trying to nationalise the banks? He has appointed wall street insiders to oversee the crisis and has done everything in his power to protect the wall street interest.

[Ulster-Lad]

What makes you say he is trying to nationalise the banks? He has appointed wall street insiders to oversee the crisis and has done everything in his power to protect the wall street interest.

That is being widely reported in the US press. I have a brother living there at the moment. He has refused to take the "bailout" money back from several banks who tried to return it using the stress test as an excuse. Also he wants to change the stock options the government got for the digout from prefered stock to common stock. This gives the government voting rights in the banks.

[Cael]

That is being widely reported in the US press. I have a brother living there at the moment. He has refused to take the "bailout" money back from several banks who tried to return it using the stress test as an excuse. Also he wants to change the stock options the government got for the digout from prefered stock to common stock. This gives the government voting rights in the banks.

This about regulation rather than nationalisation. the stress tests were designed by the banks themselves, everybody recognised that they were weak in the extreme, and yet six of the biggest banks have still failed them. What we are seeing is the banks trying to shake off any form of regulation at all so that they can go back to the "good old days" of casino banking.

[Ulster-Lad]

This about regulation rather than nationalisation. the stress tests were designed by the banks themselves, everybody recognised that they were weak in the extreme, and yet six of the biggest banks have still failed them. What we are seeing is the banks trying to shake off any form of regulation at all so that they can go back to the "good old days" of casino banking.

Fair point...

Citi Makes Headway in Stock-Conversion Talks - FOXBusiness.com

As much as $25 billion in preferred shares held by the U.S. government will be converted into common shares as Citigroup struggles to stabilize itself following more than $37 billion in net losses during the past five quarters. The conversion would mean a 36% ownership stake.
Current holders of the bank's common stock could hold as little as 26% when the conversion is completed.

[Cael]

Fair point...

Citi Makes Headway in Stock-Conversion Talks - FOXBusiness.com

If you read this thread: http://www.politics.ie/economy/65513...ers-rally.html

you will se how the bankers can still make fortunes in a depression, simply by creating fake rallies in the market to draw in joe public and then clobber him. This scam was used extensively in the Great Depression of 1929 - 34. It seems to me it is the freedom to do this that they desperately want to protect.

[Ulster-Lad]

If you read this thread: http://www.politics.ie/economy/65513...ers-rally.html

you will se how the bankers can still make fortunes in a depression, simply by creating fake rallies in the market to draw in joe public and then clobber him. It seems to me it is the freedom to do this that they desperately want to protect.

Could be, as I said you had a fair point.