So, America got the “good” news on Thursday: the banks are fine! Everything is fine! The financial sector passed the stress tests with flying colors! Indeed, Friday was a banner day for bank stocks across the board. Wells Fargo stock was up 14%. PNC was up 19% and change. Regions Financial leapt up bu almost 25%. And Fifth Third Bank stock gained nearly 60% on the news that it only needed $1.1 billion in capital to meet the government’s strict requirements for a capital cushion.
Jim Cramer has declared the financial crisis all but over as a result.
Investors can buy almost any bank for the next week, Cramer said, as this group emerges from the black hole into which the credit crisis had pulled it. In fact, he called this a once in a lifetime move in the financials.
What’s happening? The stress tests, that’s what. The Treasury Department released its test results, and this sector is on much more solid footing than anyone had thought. Turns out Armageddon is no longer an option. Banks won’t be nationalized. The worst-case scenario that the most ferocious of bears warned against is off the table. With confidence restored, Wall Street is rushing back into these stocks.
Confidence in the system! Crisis averted! Tim Geithner is a hero! The banks passed the stress tests easily, and credibility has been restored in our financial system! The bears were wrong!
…or were they?
The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.
In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.
The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public.
Government officials defended their handling of the stress tests, saying they were responsive to industry feedback while maintaining the tests’ rigor.
When the Fed last month informed banks of its preliminary stress-test findings, executives at corporations including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. were furious with what they viewed as the Fed’s exaggerated capital holes. A senior executive at one bank fumed that the Fed’s initial estimate was “mind-numbingly” large. Bank of America was “shocked” when it saw its initial figure, which was more than $50 billion, according to a person familiar with the negotiations.
At least half of the banks pushed back, according to people with direct knowledge of the process. Some argued the Fed was underestimating the banks’ ability to cover anticipated losses with revenue growth and aggressive cost-cutting. Others urged regulators to give them more credit for pending transactions that would thicken their capital cushions.
At times, frustrations boiled over. Negotiations with Wells Fargo, where Chairman Richard Kovacevich had publicly derided the stress tests as “asinine,” were particularly heated, according to people familiar with the matter. Government officials worried San Francisco-based Wells might file a lawsuit contesting the Fed’s findings.
What? You mean the results were rigged? The Fed folded its hand? Several banks failed even the far less than stressful tests and negotiated down their capital requirements even further? Well, gosh, that explains why the results were “far better than expected”. No wonder the banks made out like bandits Friday in the markets!
Why, no one could have predicted that the stress tests were nothing but a PR scam to buy time, or that the delay from Monday to Thursday would be used to fudge the numbers! Nobody could have foreseen that the tests were designed to lull Americans to sleep while Obama declared the country’s largest banks to be Too Big To Fail! Surely nobody foresaw the game plan was to reinflate another stock bubble to cover up the continuing collapse of our economy and to give the banksters every concession they ever wanted as Democrats and Republicans alike caved in to the people really running the country!
And yet, that’s exactly what happened. From the get-go, Obama was faced with an enormous problem made worse by the Bush reponse to it. But given the opportunity, Obama showed his true colors, preferring to put his trust in the people who got us into this mess. And surprise, surprise…the stress test was a sham from the beginning.
Total losses from the financial crisis will range around $3 trillion dollars or more, depending on who you talk to. We still have $2 trillion in losses to go.
The Fed says the banks will only need $75 billion more to survive these losses. The banksters were willing to sue if the Fed said they needed more. These lies are staggering, and the stress tests’ so called worst-case scenarios have already been broken.
The banks are insolvent. The losses will continue to pile up. It’s not a matter if if this will blow up in our faces, but when.
Be prepared.
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