Here's James Kwak of BaselineScenario.com, on the stress test story. He sees it as one more financial fraud:
"Despite the much-publicized black eye to Citigroup's management, the bottom line of the Federal Reserve's stress tests is that every other large U.S. bank will be allowed to pay out more cash to its shareholders, either as increased dividends or stock buybacks. And pay out more cash they will: at least $22 billion in increased dividends (that includes all the banks subject to stress tests), plus increased buyback plans.
Those cash payouts come straight out of the banks' capital, since they reduce assets without reducing liabilities. Alternatively, the banks could have chosen to keep the cash and increase their balance sheets--that is, by lending more to companies and households. The fact that they choose to distribute the cash to shareholders indicates that they cannot find additional, profitable lending opportunities."
Rather than just speculate with my own I believe well grounded if cynical suspicions, let me quote a few more experts like Mike Harrison, an expert on Credit Write Downs who wrote earlier, "I would say the stress tests were a mock exercise to instill confidence in the capital markets. This was important first and foremost because it would induce private investors to pay for bank recapitalization instead of taxpayers. But it was also important for the economy as a whole as the sick banking sector was dragging the whole economy down. The key, however, is that the tests were a mock exercise. Despite the additional capital, banks are still hiding hundreds of billions of dollars in losses in level three, hold to maturity, and off balance sheet asset pools. If asset prices fall and/or the economy weakens, all of this subterfuge would be for nought."
He quotes Mike Konzcal who did his own line-by-line assessment of the actual numbers the banks report on earlier tests. He noted that banks often have to worry about several liens on the properties they have financed and hold mortgages on.
"So the original loss from second-liens, as reported by the stress tests, was $68.4 billion for the four largest banks. If you look at those numbers again, and assume a loss of 40% to 60%, numbers that are not absurd by any means, you suddenly are talking a loss of between $190 billion and $285 billion. Which means if the stress tests were done with terrible 2nd lien performance in mind, there would have been an extra $150 billion dollar hole in the balance sheet of the four largest banks. Major action would have been taken against the four largest banks if this was the case."
Are you still with me? What comes to mind is the old adage: "what a web we weave when first we practice to deceive.'
Why are they doing this?
Here's Harrison again, from his posts on the authoritative website, Naked Capitalism: " The real question is: why is the Obama Administration running victory laps, unrolling the "Mission Accomplished' banner on the credit crisis, as Mike Konczal describes it? I suspect this is just a political stunt to provide cover in the mid-term elections to somehow demonstrate that the Democrats fixed the problem that the Republicans created.
I think it could backfire if only because the (real) underemployment rate is still 17%. Nobody wants to hear the "I saved the economy routine" when they're unemployed and losing their home."
Now, do you see why we should be stressed too?
News Dissector Danny Schechter edits Mediachannel.org and blogs at newsdissector.net. He investigated financial fraud in The Crime of Our Time (Disinformation). His latest book is Madiba A to Z: The Many Faces of Nelson Mandela (Madibabook.com.
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