Fed Stress Test a Farce
By Greg Hunter’s USAWatchdog.com
Last Friday, the Federal Reserve announced it completed its so-called Fed stress test on 19 of the country’s largest banks. Improved financial health allows some banks to “increase or restart dividend payments, buy back shares, or repay government capital.” The news was met by some mainstream media outlets with jubilation, even though the Fed did not disclose which banks did well and which banks did not.However, Wells Fargo, J.P. Morgan, U.S. Bancorp and BB&T were some of the banks that almost immediately announced dividend increases. The Fed said, “The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks’ long-term access to capital. Such access will support lending to consumers and businesses.” (Click here to read the complete Federal Reserve press release and report.)
Funny, I thought the bank bailout was supposed to encourage more lending. The dividend increases will fatten the paychecks of bank executives, but I don’t see lending taking off anytime soon. There was plenty of information about what went into the Fed assessment of the financial health of the banks, but “mark to market accounting” was not mentioned one single time in any release or report I read from the Fed. “Mark to market accounting” is simply valuing an asset for what you can get for it today. It has been a standard method of accounting much of the 20th century, and it is how the IRS values assets.
Many of the 19 largest banks are sitting on possibly trillions of dollars of mortgage-backed securities (MBS) and underwater real estate. Because of an accounting rule change in April 2009 by the Financial Accounting Standards Board (FASB), “mark to market accounting” is largely ignored. Banks can hold diminished assets on their books at whatever value they think they can get for them in the future. A FASB press release said, “Under the current rules, unless the severity and duration of a drop in fair value is too great, if a company can assert that it intends and is able to hold a security until the fair value recovers, it need not record an impairment charge on the income statement.” (Click here to read the complete FASB release.) This accounting rule change makes banks look like they’re in much better shape than they really are. How many would be solvent, let alone be boosting dividends, if they had to write down toxic MBS and foreclosed property held at full value on their books? I am sure some banks would be insolvent if they used “mark to market accounting.”
Economics professor and former bank regulator William Black thinks some institutions are insolvent now, like Bank of America. He wants B of A taken to receivership. B of A just announced 2 weeks ago that half of its 13.9 million mortgages are “bad.” Black also says the FASB rules are a “farce.” Late last year, he co-wrote an Op-Ed piece in the Huffington Post that said, “This accounting scam produces enormous fictional “income” and “capital” at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks. . . . We have made the CEOs of the largest financial firms — typically already among the 500 wealthiest Americans — even wealthier. We have rewarded fraud, incompetence, and venality by our most powerful elites.” (Click here to read the complete Huffington Post article.)
When I was listening to the Fed stress test coverage last Friday, I didn’t hear a single person bring up the enormous “mark to market” issue. One commentator opined that the Fed did not release the names or outline the problems at the weakest banks in their latest stress test. He also said it was probably so the banks could not “game the system.” I say the system is already “gamed,” and the mainstream media and, apparently, the Federal Reserve are simply ignoring this glaring fact. Don’t think you will be hearing much about this story in the future. The day after the Fed stress test results were released, the U.S. shot 112 Tomahawk missiles into Libya and started a third war. That knocked discussion on this story right out of the news, but that was probably just a coincidence.
the game is winding down and its time to cash out before the wizard behind the curtain is revealed! Keep up the good work and hold their feet to the fire Greg.
sing the FEDS new corporate song in your munchkin voice,
follow the yellow brick road
follow the yellow brick road
because their monetary policies are from the Land of Oz
If you believe anything The Fed says at this point then you are D-U-M Dum. Ben Bernanke has been flat out wrong on 100% of what he has told us. The banks are fine Greg, and there is no inflation. And when one or more of the big banks finally collapse under the weight of their own ponziness, Bernanke will say how he did not see it coming. Lets go bomb some other sovereign nation so we can spread democracy and freedom. I can’t believe Americans are not rioting….. yet….
Greg, little Fed & banking games at it again and Wall Street rallied with financials helping stage the way. I have long wondered if Bank of America is insolvent. The government, Fed, Wall Street, & MSM will never admit it and do whatever is necessary to keep the lid on that “BREAKING NEWS”. Bank of America’s little news story about half of their loans being bad was a “shot over the bow” to the Fed & the Government to get them some fresh meat and do it quickly or else the rest of the story might come to light. Make no mistake about it, BofA is BIG, prominent, an institution so to speak, and I believe that little announcement was a threat for help (money). Make no mistake about it, Bank of America knows where the bodies are buried and will not go down without full disclosure about this mess. That is why the next back page announcement will be something like this:
“Bank of America announces dividend”; and, of course, its stock goes up 4 points.
After I posted the above pre-trading futures shows BofA down. The MSM, the Modesto Bee, just stated “In the U.S., Bank of America Corp. stock fell 1.8 percent in pre-market trading after it said that the Federal Reserve rejected its plan to raise its dividend in the second half of this year. The Fed allowed major banks to increase their dividends last week if they passed stress tests. Banks slashed their payouts to shareholders following the financial crisis in order to save cash. Bank of America said that it expects to submit another request to increase its dividend to the Fed this year”.
I believe this is another “shot over the bow” from BofA to the Fed & the Governemnt to get some “meat” and let them announce a dividend and a false stress test passer or else. We’ll see how it turns out, but I’m betting on BofA making the Fed do its bidding.
Read more: http://www.modbee.com/2011/03/23/1611937/stock-futures-dip-as-japanese.html#ixzz1HQZ8BA00
It is the crime of our lifetime as the Feds QE1 & QE2 along with Goldman & pals on Wall Street & Washington play games with American lives. They have destroyed the American dream for millions and Congress turns a deaf ear as they drink from the same trough.
QE2 like QE1 was a gift to Wall Street and what did it give average Americans……………$100 oil from $70……….and food inflation of 10%. If the Fed decides this spring/summer the economy is going south( or bankers need more relief) they will only fuel the fire to save employment in their eyes. Inflation and stagflation they seem to only a passing thought to them to ignor.
When is Ron Paul going to get Bernanke in front of this committee for an extensive grilling?
How…..Greg do you see this playing out this spring/summer on another round of ” Q E ” and its consequences?
I believe in coincidence, coincidences happen all the time, I just don’t trust coincidences.
Correct me if I am mistaken, this probably leads to two sets of books, one for financial reporting and one for taxes.
The financial reports, without mark to market, are inflated, compared to the actual value of the assets, leading to the appearance profitability, bonuses, and dividends.
The books for taxes, with mark to market, show losses, that reduce the amount paid in taxes, and make more money available for the appearance profitability, bonuses, and dividends. So taxpayer money is again being transferred.
Yet another fleecing of the public; glad I grew up streetwise in Brooklyn and have adopted a healthy dose of skepticism. Who do the banks and the FASB think they’re kidding? All credibility went out the door the day “mark to market” died.
Sounds like the same delusional logic used by the defined benefit pensions plans that fund their obligations on the assumption of 8% annual returns, rather than based on actual returns experienced and projected obligations.
Libya, Charlie Sheen, Britiany Spears, O.J., The Royal Wedding and now Liz Taylor(America’s leading film legend and chief monogamists of 8 husbands). What do they all have in common? Watch my left hand while I hit you with my right fist. That’s what the network news media has orders to accomplish with these stories. Anything that the public is shallow enough to be distracted with, while the New World Order is put into place.
The problem is that the vast majority of people are very shallow, the average american teenager couldn’t find Asia on a world map. The young adults are playing while Rome burns. The others believe that they can change anything through the ballot box. A few, and I mean a few of us, know what is coming, but too few to stop it. The Main Street Media would sell its grandchildren to the devil for another headline but then spin that headline to their own self interest.
Don’t forget that those 112 Tomahawk missiles cost $1,066,465 each(!) to replace. I’m sure there are several defense firms that are more than happy to build replacements…
We ignore the big problems like the one you have mentioned while we sit at a distance and talk about launching missiles at people as though it is some kind of antiseptic, surgical operation. All the while the military industrial complex gets more money and more power
This stuff just makes me sick.
Isn’t it amazing how these financial-henchmen always state “recovery is now on the way”- excuse me? With their endless creative-bookkeeping schemes,since 1913- who thinks that recovery is coming to you and your families? Be sure and let me know the date and time it will occur! After all,they always know “the who,what,where and why”-don’t they? In the meantime,I’ll be seen pushing my car to the gas pump,getting my daily work out,just think how healthy I will get with these high prices!
Just a question re fictional income. If that is the case then the bonuses are fictional also. When it all comes down, any % of zero is still zero. Who gains?
Every American that believes everything is fine should read this article:
Hold onto your boots my fellow Americans, the ride is going to get way bumpier.
Greg, since I did not tell you you rock in my first post, here it is: YOU ROCK! Keep up the good work my friend!
Tom H., thank you for that article, I suggest everyone click on it and read it. Its people like you who I want to sit around the camp fire with when the shit hits the fan.
Thank you Art, and good choice. I am well supplied for TSHTF scenario. I just came across this today:
G Edward Griffin wrote “The creature from Jekyll Island” which I read years ago but never knew about this organization, Freedom Force International, which he started. About half way down this page you will find links in yellow to five articles he wrote that are an absolute must read beginning with “The Chasm”.
I always read and usually agree with your comments Art. Thank you for the kind words.
How does JPM fast tracked to have its own vault license to store & take delivery of it’s own shorts of PMs, a process that normally takes 45 days or more for security & all the other aspects to run a vault operation after inspections by the CFTC! You own the regulators? Has JPM has met the guide lines to run such a detailed process that includes assays,weight masters & more? The story has got a lot of input at http://www.seekingalpha.com where views differ hotly!
Folks,CROOKS FLOCK TOGETHER! As things seem to favor the biggest banks no matter how much toxic crap they hide on their split book keeping system the FASB came up with to keep the crooked Rating agencies at bay & give the crooks/bankers more time to add more profits! There is volcano that will blow all of this False good news.A earth quake called Derivatives cannot stand the light of day in civil litigation. Bankers who did not sufficiently disclose these risks when selling one of its financial products to investor. This should start a “down hill snowball effect against banks as investors win more civil cases & are awarded monetary damages,plus interest on top of that. From small investors to small companies & local governments. The cost to banks can not escape the news no mater how they try to spin it. Then as more seek to use the Civil Courts to recovery lost assets before the banks call in favors from the DC heavy weights. The stress tests were not done by a true out side set of experts or the out come would be real news” Wall Street Banks have all been closed due to fraud” & trillions of tax payers assets are now in the pockets of the billionaires club.
Just in from NASA’s top monkey, Wall Street has the most gravitational pull on earth, the whole place SUCKS!!
At what point is it possible that President Obama just throws up his hands and says “I quit!”? Who could blame him? Among the universal traits of all politicians is either creating a mess and leaving it for others to clean up or inheriting a mess and making it worse. Add in those other problems that are beyond a limited capability to comprehend, never mind find a workable solution for, and you have all the markings of (A) cutting and running and being labeled a coward and a fool, or (B) hanging on and assuring you will be recorded by history as arrogant, incompetent and a fool.
That seems a pretty harsh assessment so let’s look at it from a case in point basis.
When elected and faced with $100 Trillion in unfunded liabilities in Social Security, Medicare and Medicaid, did he address those problems? No, he decided to expend countless hours and all available political capital in essentially doubling down on that astronomical number by passing a new unfunded liability, health care “reform.” Small wonder this dog came back to bite him the next time the voters went to the polls.
When elected the nation had a cumulative debt (and this only at the Federal level) of over $8 Trillion and a deflationary housing crisis not seen since the 1930’s. Did he cut the budget? Did he rein in the Wall Street banks? Did he shut down Fannie and Freddie that along with the banks had created the housing mess? No, he shoved another $5 Trillion into the bottomless pit of government debt and deficit spending. Then as if to make things even worse he awards Ben Bernanke with another term as Chairman of the Federal Reserve Board, giving the all clear signal to the banks to keep on keeping on with their gouging the public and the taxpayer, and paying out those huge bonuses, as unemployment rises and GDP and tax receipts fall.
It’s not just Obama and the Democrats that have chosen this path to fiscal self-destruction; they are after all, just following the European model they seem to so greatly admire. And just how is that working out? While having been eclipsed of late by the glare of events in Japan and the Middle East, financial conditions in the Euro zone continue their deterioration unabated. German/Greek bond spreads have reached almost 12% as that government seem incapable of doing anything. Irish bond yields are above 10% on rumors of coupon payment failure and increasing signals from the newly elected government is not going to go along with the ECB/IMF bank bailout program and the dictated austerity budget that came along with it. Portugal’s government appears on the verge of falling under circumstances similar to the Irish. The Italian government, already racked by their never ending corruption problems, now faces an energy crisis as they are more dependent on Libyan oil, natural gas and capital than any other European State. In just three months inflation in the UK has reached 4.4%, and that’s just the “official” number. Annualized it would be almost 18%! Never mind Belgium, they haven’t had a sitting government in six months and nobody seems to care.
When elected the situation was by no stretch of the imagination stable, but at least it wasn’t anything approaching the utter chaos we have now. I guess that Chamberlainesque apology and vacillation tour didn’t work out so well. Perhaps now sensing that those tanking approval numbers really do mean something , he has taken another swipe at the tar baby of Arab tribal warfare, only to see his UN mandate and NATO cohesion start to come apart after less than a week. The Arab League started to go wobbly almost as soon as the first bombs hit the ground; The Germans have said “no thanks” and withdrawn all their assets from the region. Although the Brits and the French remain resolute for the moment, neither has the depth of financial of military infrastructure to maintain any protracted engagement. Guess who that will leave holding the proverbial bag and with his fist firmly embedded and stuck to the tar baby?
The implications of all this for an ongoing and already disastrous domestic energy policy are all to obvious to even elaborate on.
So the question for President Obama becomes will it be A or B above? Or is there perhaps a scenario C we are not seeing? That being the possibility of the Clintons playing a Machiavellian power game just below the surface wherein Obama resigns, the bumbling Biden becomes President and appoints Hillary as his VP and then he in turn resigns for “health” reasons, handing her an unelected Presidency and an almost unassailable position in the upcoming election.
Just a thought, but I don’t think it’s outside the realm of possibility, or of the Clintons’ twisted machinations.
Obama and his wife love being the new “king & queen”, resign, never. He will stay and pretend all is well while Rome burns. Your thoughts are quite interesting and insights as to the state of the world economy are quite on point. I believe Lybia was a distraction to the Yemen and Bahrain problems; which are certainly considered “real” interest. Bahrain allows the US Navy fleet there and Yemen is against Islamic terror in the area. I believe that the governemnt can now say we can’t help those peoples because we are tied up in Lybia, thereby taking the sides of those phoney govenments by not doing anything yet appearing like the US is on the side of the protesters.
Although I agree with your “King and Queen” concept I also thing Obama is a man of limited psychological strengths and at some point he may well either snap into violent rage or simply break down into a quivering spineless mass.
Just watched the documentary “Inside Job” and although I had already read much of the information presented it still made me sick to my stomach. I would recommend it to anyone interested in the 08 banking crisis (which is still ongoing).
The conclusion that one can make is that investment/Wall Street banks and the Fed Reserve own US Gov’t regulatory agencies, all 3 branches of federal government, private rating agencies (Moody’s, S&P), FASB, university economic schools and the main stream media. It all seems overwhelming but here are a few things I try to do in my little corner of the world:
1) Buy PHYSICAL silver on a monthly basis (average costing)- @ $36/oz I’m not getting as much as I used to!
2) Pulled my money from the big banks and do all my banking with a credit union.
3) Paying off my debt as quick as possible
4) Buy local whenever I can, even if it costs a bit more
Thank you again Greg for the important work you’re doing!
I can’t remember for sure if it was the allies or Germany during the war that used this tactic to debase and destroy the currency, but one of the war time strategies is to flood a country with its own currency.
Make no mistake about it, this is considered an act of war.
All i want is this:
I want All those in high positions in the Fed, banks and investment firms to have their houses and vacation homes searched. I want to know how many of these people of power who tell US that “everything is going to be just fine” have stock piles of gold, silver, food, brass, and emergency supplies.
Its like the scene in the Movie Titanic. Keep the poor folks locked in below deck and tell them everything is OK. Meanwhile all the rich folks that can see whats really going on are climbing into the life boats….
Keep it coming Greg!
I wrote thiws piece last fall shortly before the election. The local geographic references refer to my home town of Charlotte NC.
Musings from Tryon Street in Charlotte.
Are we approaching the silly season or the season of pretending?
If you look closely you can see a bit of color appearing in the leaves of the Oaks and Maples. The Canadian geese around the lake at Freedom Park seem to have taken on a bit of restlessness. If you listen carefully on these still warm nights that’s not just sushi fatigue you can almost hear spreading among the bankers of Dilworth and Meyers Park. The fall approaches with an ever-quickening step, its very name portending a decline of sorts. The government’s continued publishing of numbers even they don’t believe any more doesn’t hold back the looming reality that is beginning to penetrate through the fog of specious economic prognostications. Even as the day traders, huddled before their flat screens, nervously pray to the gods of CNBC that it’s all just a bad dream; still those visions of shrinking index numbers and negative equity just won’t go away. A seaming weariness grows and an almost imperceptible groan is heard all along Tryon Street. Pedestrians along the Overstreet Mall take furtive glances at each other, each with that unanswered question in their eye; what was that the sound we just heard, perhaps the economy taking that final sigh before slipping into a coma?
So why shouldn’t it? After all we’ve had peak credit and peak oil and all the other peaks visible to the denizens of the lower floors. Now the season of peak pretending has come and gone in an instant. All our pretending bought us reprieve from the havoc of mismanagement and fraud didn’t it? We all knew that the true conditions would reveal themselves eventually, but please God just not today. Now their specter is on the rise, worse than any of our Grandparents nightmares from the ‘30’s. As someone once said, “When nothing is believable, what’s the point in pretending any more?”
When a new reality sets in, it’s time to do some reassessment. We’re looking at some “bad ju-ju” here. Too many years of getting something for nothing, knowing full well that it always ends in tragedy, whatever can go wrong, will go wrong. All those things we have refused to restructure and resize to conform to the reality we denied existed are about to be done for us by the immutable laws of history and economics. What was once a nation of hardworking self-reliant and for the most part moral citizens has become inhabited by far too many over-entitled, self-indulgent and yes at times barbaric morons ruled by thieves and con artists calling themselves financers and politicians. What was once solely the realm of economics is about to become political, and dangerously so.
While we bemoan our losses in our 401ks, our home equity and manufacturing jobs, there is a greater loss many as yet fail to recognize. The loss of the rule of law, without which we enter the wasteland of nothing matters and anything goes wherein consequently, everything goes. That we had the rule of law is what has kept China and Japan and others buying our debt for all these years. Their continued buying was predicated in the belief that in the U.S. would enforce those contracts because that was the law. It wasn’t arbitrary and after all in spite of our flaws it made thing work better. As the rule of law disintegrates we kid ourselves to we think the rest of the world doesn’t notice. They are beginning to stop believing in our money, indeed in our future. As that confidence is lost they will sell all those billions in Treasuries for whatever they can get, and our economy will get flushed away like a quick summer flash flood down Little Sugar Creek.
Like the line from Cool Hand Luke “What we have here is a failure to communicate” – honestly, by all of our political leaders, both left and right. The separation between what politicians say and what people are actually experiencing has widened to an unbridgeable chasm. Example, Obama comes out in praise of the new Chevy Volt as the savior of the auto industry, except at $41,000 no one but the costal elites can afford it and even they won’t buy it. Why would they, that new BMW or Lexus is much flashier anyway. Example, Senator McConnell doesn’t want corporations to have to publicly disclose just which political ads they are paying for, claiming it will lead to job losses. Really? Or is he just running cover for their dubious justifications for shipping even more jobs overseas?
It isn’t just government that has failed us. It’s the news media, businesses, the education system, even the courts. All have become the political instrument of one faction or another, and hence all have become suspect. And why shouldn’t they? Just look at the new so-called banking regulation bill. Two thousand pages? That isn’t the rule of law, that’s just deliberately adding more chaos to an already overly complex chaotic system. Why, so they can tell us they did something? Wouldn’t it have been far more effective to just admit that a mistake was made in repealing the Glass-Steagall act and reinstate it? But why reinstate an effective law that was less than forty pages when they can birth a monstrosity of two thousand pages that no one has read never mind understands except maybe the bureaucrats that will use it as a shield for the fat cats and a bludgeon against honest businesses and citizens.
The fall of election years used to be characterized as the silly season, now I think it’s going to just be crazy and irrational. Many will forget how it’s our institutions that have deliberately misled us; their confusions will devolve into a vicious certitude devoid of any semblance of reality. Demands for trials for our perceived enemies in the kangaroo court of public opinion will become just what they are, another mockery of the rule of law. Will the chaos in political arena and the chaos in the markets become reflections of each other? We all need to pray that things don’t unravel, because if they do it could well become a cascade. Like the old analogy; when you have a fire in the Circus tent, don’t expect too much from the clowns’ bucket brigade. Up to now all our elected clowns have done is throw more kindling and kerosene onto the funeral pyre.
I’m sure I’m not the only one who has this sense, but a lot more of us need to start paying attention to that prickly feeling as the hairs on the back of our neck start to stand up with each new absurdity. Oh what the heck maybe I just need to take a vacation, the politicians have everything covered right? And what they don’t the gods of CNBC do, right? Right?
Something is going to break down this year.
Anything good coming down this year or any other time?
Perhaps the criminal banking cartel/crime syndicate will break down this year. What if all of a sudden the politicians decided that they were going to follow the rule of law and actually serve the people? Imagine the CFTC actually prosecuting criminal manipulation in the commodities markets.
Perhaps the Federal Reserves printing press will break down, putting an end to the blatant destruction of our currency.
Perhaps the communications satelites will break down from a bombardment of solar flares, putting the kibosh on the state controlled propoganda machine more commonly known as main stream media.
Perhaps our military will break down, putting an end to our model of spreading freedom by bombing the crap out of sovereign countries.
If none of these things happen, then all of the things Greg suggests as possible break downs are a distinct probability.
Wow, great article Greg. I’m keeping an eye out for more of your journalism.
“The day after the Fed stress test results were released, the U.S. shot 112 Tomahawk missiles into Libya and started a third war. That knocked discussion on this story right out of the news, but that was probably just a coincidence.”
Classic! Great piece Greg. Thanks for the info and the guts to take a stand. 😉
Oh, and BTW, just so you know…there are probably hundreds, if not thousands, who are reading your info but, for whatever reason, don’t reply. Don’t think there aren’t people reading…there are. Keep it up…
When has the Fed _not_ been a farce? The Fed needs to be eliminated. Trouble is, if elimated right now, the gazillions of crap assets it absorbed would end up on the Treasury’s balance sheet. In the end, it’s absolutely clear that the Fed is an off-balance-sheet entity of the US gubmint.
That kind of structured debt device worked so well for Enron.
With or without the Fed, the US is financially toast. The dollar will crater and banks won’t have a pot to piss in. Sheila Bair (FDIC) will be begging congress to cover the deposit insurance overage as depositors flee en masse … yet discover their withdrawals are worth less than yesterday. Hyperwhat?
The “nobles” must lie in order to steal.
That’s why it’s called the “noble lie.”
It’s unfortunate for all that we have to repeat history.
Good work, Greg! Maybe folks will catch on sooner,
this time around.
Did you see the Miami airport fire this morning? Reminds me of an old Hogans Hero’s episode. “Another day, another ammo dump,” as flames rise skyward. Am I the only one noticing that the oil infrastructure of this country is also being systematically destroyed just like the currency? Make no mistake about it, the enemy is in the gate and they also sit in the highest offices of the land destroying the nation from within in every possible way.
Greg I think it’s time to head for your underground bunker while you still have a chance to hide because you have exposed too much scullduggery that our (OWNER’S) have perpetrated on us sheeple to allow you continue your excellent work…..we need you to survive.
Greg, great article. The change in the valuation accounting rules is just one more example as to how Congress and the Bankers are trying to fix the crisis by using more of the same deregulation policies that caused the financial crisis. Even more crap is the new FAS 166 and 167 which alows the related party short term Repurchase borrowings between a bank and its self sponsored hedge fund to be booked as a sale, allowing the instruments to be traded above FMV (thanks to the new valuation rules), and the fabricated gain between the related parties is booked as interest income. What a joke these people are,
Hi Greg, what I find intriguing about mark to market is that the stock market can’t pass that test either. If a corporation’s stock were all sold at the same time, the “established” share price would probably decrease as more and more shares were sold off.