As I suspected all along:
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.
The banks pushed back – but since when does the regulating agency organize itself around the desire of the regulated to look as good possible? What likely happened here is a desire to avoid a complete collapse of the banking industry and a Dow of 2,000. The Fed – largely responsible for that part of our mess not caused by Fannie and Freddie – is playing fast and loose in order to avoid scrutiny while the banks and the Obama Administration are more than willing to go along for their own reasons. The only problem here is that if, as I suspect, our financial system is completely collapsed, then the longer we avoid facing it the worse it will ultimately be.
Our financial system is based on funny-money and set up in a crazy-quilt of various usurious programs which do little or nothing to advance the genuine wealth creation of making, mining and growing things. It all worked well for a while, but the only way we’ll get back on track is to ditch what we’ve been doing and essentially start over with a clean slate. Doing this, of course, will mean that we have to allow a lot of huge corporations to fail and, of course, we won’t have the funds for grandiose schemes to Europeanize America – and thus the Powers That Be are determined to pretend that all is well.
Its gonna really suck when everything hits the fan – but, we’ll survive. We’re Americans, after all, and once we clear out the corrupt cretins in DC, we’ll be able to start building again.
Blogs For Victory 