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Yesterday the NYT told us that banks are in better shape than "some" think because all 19 of the stress-tested banks would "pass." That’s because no bank will be allowed to fail. Today, we learn that the Federal Reserve has ordered the banks not to reveal any results from their stress tests when they talk to investors about their quarterly results.
From Bloomberg (h/t Calculated Risk):
The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession …
The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. …
“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.
I once naively thought bank executives are under a fiduciary obligation to shareholders, creditors and other investors to disclose information material to the financial condition of their banks whenever they make pronouncements of such financial conditions, as in a quarterly earnings statement. In other words, they’re not supposed to lie or mislead people. And there’s the minor matter of being honest with American taxpayers who are being asked to bail out these same banks for hundreds of billions of dollars.
But apparently our government thinks that the only way for our banking system to hold together is for the executives of the 19 most important banks in the US to mislead everyone. And this is supposed to reassure us? I don’t know what to say.
52 Comments
Good morning Scarecrow!
Thanks for keeping up on this issue. It amazes me that there does not seem to be a flood of class action lawsuits against the banksters going on. With the destruction of the common stock in most of these bank corpses you would think the class actions would be rampant.
Good morning all.
Yes, I haven’t seen many stories about shareholder derivative suits. Decades ago, my corporations law class was full of such cases, and the sense I got was there were lots of ways for shareholders to hold management accountable for misrepresentation — that was then. The sad thing about America in these last decades is the utter destruction of many of the avenues for holding government and business accountable. The rule of law has taken a terrible hit, especially in the Bush years, and the Supreme Court has done a lot to limit the ability to hold officials accountable. Very little that I learned in law school in the 70s is still law.
I agree. I read case after case on the duties of corporate officers and directors. When you hand out the blame, don’t forget Delaware, the state that started the race to the bottom on corporate governance, and its courts, which are every bit as responsible in that area as Congress and the Supreme Court are in the securities area.
Fiduciary responsibility appears to be an creative anachronism and extends to far more than just the financial industry. Example would be the usage of flawed electronic voting machines and the responsibility of those who purchased them and the contracts associated with the purchase under ‘HAVA’.
Even tho shown to be flawed AND mechanisms in place to have the States/Counties purchases refunded by under HAVA, such is not being done.
The whole paradigm of accountability is a fraud and it’s why American’s are so turned off by the political system ( and why students think it’s ok to cheat on tests).
For more on the ’stress tests, Yves Smith has done excellent reporting on it: “We said from the beginning the stress tests were a complete sham. Just look at the numbers. 200 examiners for 19 banks? When Citi nearly went under in the early 1990s, it took 160 examiners to go over its US commercial real estate portfolio (and even then then the bodies were deployed against dodgy deals in Texas and the Southwest). This is a garbage in, garbage out exercise. The banks used their own risk models to make the assessment, for instance, the very same risk models that caused this mess. And there was no examination of the underlying loan files.”
Gee, kindergarden rules, everybody gets an award.
I wasn’t surprised when I caught the Reuters piece last evening. So much for increased transparency with this administration. Personally I believe that if the reason for the stress test was to determine a banks viability, then that information should be made public and let our alleged free markets deal with the numbers and let the chips fall where they may. Sorry Obama, this isn’t the change I thought you were talking about. If the buck stops with you, put an end to this opacity at the Federal Reserve as it’s really starting to stink up the place.
Got to keep the taxpayers in the dark while the banksters have their hands in our pockets. Like thieves in the night…
Good Morning Scarecrow and Firedogs,
Scarecrow – was recalling our mutual admiration for candidate Obama’s willingness to speak to the electorate like we had functioning brains and could make up our own minds without being talked down to like 7 year olds.
like you, I simply don’t know what to say
Yes We Can !Let It Ride !Exactly right. Putting the best face on it, the Fed policy here is to prevent undue panic from an uninformed public — but it’s beginning to look like the group that can’t handle reality is advising the President — we’re asking a lot of Obama to confront these people, but, uh, that is his job.
DUGG and recommended. Below is my comment at the DIGG:
pup34
Today Alternet has an article by Matt Taibbi entitled: ‘Obama’s Top Economic Advisor is Greedy and Highly Compromised’. This is a must read. It is particularaly about Summers but wraps up the entire sorry story of the absolute control over the banking fiasco by Goldman Sachs.
ayieee!!
just flashed on Goldman’s as Vegas mob family with Summers their embedded behind the scenes enforcer, Geitner, their brooks brothers beard and our president reduced to Casino Greeter -
picture seems about right… Here’s a link to vidoe of a protester successfully hi-jacking a
speechtsunami of words by Goldman Sachs CEO, Lloyd Blankfein on 04/07/09. Scroll down on page 1 for video. “We want our money back!!!”Thanks
LMAO.
Thanks.
this is just utter bullsjit…period
During the Bush WH years from 2001 on the standard “stress test” was if WH could do it and get away with it then doing it some more was in order.
Especially if the Bush WH run DOJ said it was “all good”. Just ask CIA.
Incredible.
So now the Obama WH is playing ‘Rules Are For Fools’ and Americans are getting more of the now departed Bush WH SOP.
Change? Change you can believe in? Where is it?
Credibility? Not so much.
The fact is that the banks got into derivatives. What IS a derivative? It is really nothing more than a bet. A bet can’t be an asset. Of course if you consider that the WINNINGS represent cash, you can call it an asset, like an IOU.
This is pretty thin reasoning because if the IOU is not collectible it is not worth the paper it’s written on. To mitigate this kabuki AIG offered a kind of insurance – unregulated of course and it was called a credit default swap. So they collected premiums because everyone was insuring their IOUs of their “illusory” derivatives which have nothing underneath them to act as collateral.
But when the “insured” called up AIG and said we have a claim here on out derivative the payouts was enormous and AIG didn’t have the cash reserves to pay their claims. They sold insurance which they could not deliver. Imagine paying auto premiums and being told by the insurance company that they had no money to pay the claim.
So everything is grinding to a hault. The whole derivative market is what makes up these toxic assets along with sliced and diced CDOs which are under performing or no performing mortgages. There is something under them – real estate. But the market tanked and even if they could unslace and undice, the properties are not worth the value of the mortgages… and dropping. Plus banks never wanted to or expected to be property owners. In a normal market they can sell these gone bad loans at close to value and not take a hair cut. Now they can’t and the more that are offered for sale, the lower the market goes hurting all their other CDOs
There is no way out of this unless there is a lot of “resetting” and clawing back of deals, cancelling CDS wholesale and and wiping out the entire derivative market. There’s nothing there but a complex web of IOUs. The easy thing is to burn them and then look at these institutions and what their actual assets are. Then we will find that all these big banks are insolvent and need to be broken up with the FDIC insuring depositors and the old banking model restored absent all the fun and profitable derivatives trading.
Bankers don’t want their biz model trashed, don’t want the party to end. They want the curtain drawn on OZ so everyone can return to their make believe world of trading derivative products and “risk management”
We need a complete remake of the finance sector. And until that happens, these guys will demand that the US gov infuse money for them to pay IOUs and not declare bankruptcy.
Why the tax payers need to pay these IOUs in never explained except for the “saving the finance sector”… or else.
Kevin Phillips is a brilliant and insightfuly political commentator.
His latest essay is worth reading over the long weekend.
“This is a much grander-scale disaster than anything that happened in 1929-33. Worse, it dwarfs the abuses of debt, finance and financialization that brought down previous leading world economic powers like Britain and Holland…
But for the moment, let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence. Equivocation will triumph. This will not displease politicians and regulators leery of offending their contributors and backers.”
It is ironic that Joe Biden predicted that our Community-Organizer-in-Chief would be tested severely in his first days in office. At the time everyone thought it would be some foreign power, some military machine which would temper the character of this new leader with a significant threat to the national welfare.
Little did we suspect that the test of our sovereign republic would come from the Wall Street and the money center banks. You can find the full article at the TPM Cafe.
Table for One
The “Disaster Stage” of U.S. Financialization
By Kevin Phillips
Thanks Scarecrow.
digg is open
Won’t get fooled again! Not.
I have zero problems supporting Obama in a two-horse race against McSane.
The problem is that Obama is following the blue dogs such as Illinois’ Melissa Bean and Rahm.
OT, plunger had another Oxdown post about this. I think a part of what is going on is that Summers uses these big 19 to then place the naked shorts on gold. That artificially props up the value of the greenback against gold. That’s another reason Geithner won’t prohibit naked shorts.
it’s foreign policy under cloak of domestic economic policy.
Agree.
You couldn’t be more right. This is all a confidence game that both Summers and Geithner are playing. A good friend is a metals trader and there have been stories over the last few days, rumblings how the Germans want their swapped gold back, as they are very concerned about the financial goings-on in the US. This is still rumor at this point, but many analysts say the US is petrified over this new development. The market already has a significant supply/demand deficit and there is no way the Germans are getting their gold back without the US driving up the price to secure supply. At best, the government is propping up the dollar by trying to plug every hole in financial land. It will not work and if the administration is trying to buy time, one can only wonder what their trying to hide.
Thanks.
Welcome back to the morning show Scarecrow! I wish the government had some people making decisions who had some common sense and decency.
Seems to me this is de facto nationalization of bank losses.
What the hell, maybe I should buy some B of A stock.
Pentagon preps for economic warfare
Connect All The Dots to David Rockefeller
http://watch.bnn.ca/#clip158804
required listening re: what comes next
The banks are getting whatever they want, no questions asked.
They will continue to get whatever they want, no questions asked.
All of the economic inequality that is destroying the fabric of this country will continue unchecked throughout the Obama administration.
We will be bewailing the growing disparities between rich and poor in 4 years because Obama will have managed to make them worse, by catering to the banksters and Wall Street greed.
http://news.silverseek.com/Ted…..609316.php
What an economic collapse looks like – We’re next.
Scroll down to the video from Adrian Salbuchi and his warning regarding What Happened To Argentina – where he’s lived through three economic meltdowns. This video is in two parts – but if you want to see what actually occurred in Argentina just 6 years ago – keep watching after he’s finished:
http://bigdanblogger.blogspot……-2009.html
This is exactly why JP Morgans trade book in gold is under water and probably Goldman Sachs as well. They hold of 70 trillion in gold derivatives and there isn’t any way close to that amount of gold around. This is exactly how government and the bankers control and manipulate the markets. It’s all smoke, mirrors and worthless paper bets and probably yet another reason why the Fed doesn’t want the stress test numbers to be made public as many would immediately realize that the emperor has no clothes.
In effect – the US opted to back its dollars with oil when it went off the gold standard, and has done everything in its power control oil-producing countries, and to hold the beachball (gold) under water. Oil and gold moved in the same direction until the masters of the universe opted to artificially reduce the value of oil well below $50 to attempt to bankrupt the oil producing nations (or at the least cause social upheaval- Lindsey Williams on YouTube). A simultaneous benefit was to cause a massive short squeeze on the dollar, so that they could claim the world was flocking to it as the reserve currency of choice. The dollar is being artificially propped up daily by the PPT. Buying dollars with dollars is akin to masturbation.
The US is actually awash in oil – and peak oil is a myth. Thousands of freshly drilled and capped well-heads cover west Texas – and evidence of a monster oil discover in Alaska decades ago (as articulated by Lindsey Williams on youtube) is being hidden from the citizens of the US.
There is no Osama Bin Laden.
Reality has been stood completely on its head.
Want your country back? Arrest David Rockefeller.
you lost me on how capping wells brings down the price of oil.
I didn’t intend to connect those two thoughts to imply that would reduce the price of oil. Capping wells and keeping supply off the market (like Iraqi, Texas and Alaskan oil) is clearly about restricting supply and keeping prices artificially high (as is limiting refining capacity).
The oil companies are absolutely guilty of war profiteering. Who do you think blew up all those Iraqi pipelines after we invaded…really?
Plunger, thank you so much for the link to the Argentina meltdown. What an eye opener! It’s long (I watched 4 films, one starts after another with a few seconds lag time and you must watch them all) but I would urge everyone to check it out.
I have only seen 2 of the clips…where are the other 2?
Thanks~
Stunning new evidence of manipulation in silver and gold has just been published by the Office of the Comptroller of the Currency (OCC), a bureau of the U.S. Treasury Department. The OCC, first established in 1863, charters, regulates and supervises all national banks. Their new data proves the manipulation in unambiguous terms. The report also confirms how the U.S. Government, in partnership with JPMorgan Chase, intentionally cheated silver investors worldwide of many billions of dollars during the fourth quarter of 2008, and longer. This was all outside the futures market I normally write about. It was a scam of historic proportions.
http://www.investmentrarities.com/03-30-09.html
Thanks for these terrifying links, plunger. JP Morgan Chase in cahoots with the Treasury again to secretly rob the rest of us.
Isn’t JP Morgan the true parent of Goldman Sachs?
The entire truth about market manipulation via naked short selling of epic proportions (fatal to the entire system) is revealed here. Absolutely the best presentation ever assembled on the subject (detailed and lengthy – but required):
http://businessjive.com/
Thanks for the link.
No one says much about AIG’s history and ties with Leviathan government. I’d like to hear more about that. What has been their role in covert operations which seem often to involve shady financial trading activities such as forex, which serve as the underpinning in said operations. Would this relationship have anything to do with the utter lack of transparency?
Alank, Mike Ruppert has documented a great deal about AIG’s covert involvement. Just Google: fromthewilderness and follow the topics. Also, in his book, ‘Crossing The Rubicon’, pages 56-57 (also others) here is an excerpt:
Pg 57:…
Pg 56 last para: …
“But apparently our government thinks…” Make that Barack Obama thinks…He and the Demoblicans* in the other branches of government.
*Demon Democrats and Republicans, members of both major parties, who are part of an open criminal conspiracy profiting from bankrupting the Federal government, creating permanent underclasses of thugs and serfs, and instituting mob rule at the local level.
Just sent that Argentina link to the Whitehouse and now I’m off to send it to my senators.
Tell your Senators Plunger says hi!
Repeat after me: “I would like to close my account. I’m going down the block to a Credit Union who will not gamble with my money.”
If the banks will not self-discipline, and the Fed won’t shut them down to stop them from converting tax dollars to their own benefit, and Treasury just knows how to become complicit in their feelings of entitlement to our money, then maybe we should shut them down ourselves.
Thank God for this website. I can’t do partisian when I don’t agree (RE: daily KOS)
Bank Protests tomorrow, funny how in NC, Charlotte doesn’t have one, guess I will have to drive to Hickory or Raleigh…
Well, wouldn’t want to clutter up the free market with too much information, would we?