Stress Tests: Fed Is Said to Seek Capital for At Least Six Banks

bloomberg.com:

At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.

While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said. The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses, they added.

Read the whole story: bloomberg.com

Comments

[PhilipTaylor]

02:47 AM on 04/30/2009

April 29 Bloomberg

6 Banks of 19 largest U.S. banks require More Taxpayer Money according to Stress Tests
Most of Capital=From converting preferred shares to common equity
FED=Hearing appeals from Citigroup and BofA for More Taxpayer Money
Risk=Diluting (Lowering) existing shareholders Value
PROBLEM=“More ..needed and it’s not clear they have the resources”
Final results=still debating how much of the information to disclose
Firms Receiving Lots of assistance=Could Face firing of executives or board members
Geithner=Wants legislation to tighten oversight of credit card fees, interest rates, and penalties
Lewis=L I E D earlier this month that his bank “absolutely” doesn’t need more capital=Demoted
Citigroup=Said “regulatory capital base is strong and announced intention conduct exchange
Regulators=believe it is politically constrained from doing much more
Forecasters=Much greater losses on horizon
International Monetary Fund=calculates global losses reach $4.1 trillion next year
Geithner=there are signs of “thawing” in credit markets and indication confidence is returning
Central Bankers=banks’ impaired balance sheets are the biggest threat to a sustainable recovery

[PhilipTaylor]

02:48 AM on 04/30/2009

There goes the TARP Money! NOW how does Main Street Prosper?

[peterg76]

06:51 PM on 04/29/2009

Correction: Six banks require assignment into bankruptcy.

[PhilipTaylor]

02:13 AM on 04/30/2009

Exactly! Time for a Gentle Bankruptcy!

Gentle to the Taxpayer!

[Wanjiru]

05:40 PM on 04/29/2009

...is your money safe?...

...or is it in a bank?...

.

[Carolab]

04:06 PM on 04/29/2009

Individual mortgage debts were combined into a “security.” The next step was to strip out the interest payments to the mortgages and sell them as derivatives, thus creating a third debt instrument based on the original mortgages.

Financial institutions began betting on the success and failure of various debt instruments and, by implication, firms. They bought and sold collateral debt swaps. A buyer pays a premium to a seller for a swap to guarantee an asset’s value. If an asset “insured” by a swap falls in value, the seller of the swap is supposed to make the owner of the swap whole. The purchaser of a swap is not required to own the asset in order to contract for a guarantee of its value. Therefore, as many people could purchase as many swaps as they wished on the same asset. Thus, the total value of the swaps greatly exceeds the value of the assets.

The next step is for holders of the swaps to short the asset in order to drive down its value and collect the guarantee. As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts can easily exceed the net worth of the issuer.

The government should never have used billions of taxpayers’ dollars to pay off swap bets. Simply wiping out these fraudulent contracts would remove the bulk of the vast overhang of “troubled” assets.

http://informationclearinghouse.info/article22087.htm

[Carolab]

04:09 PM on 04/29/2009

(contd.)

The billions of taxpayers’ dollars spent buying up subprime derivatives were also wasted. All government needed to do was to suspend the mark-to-market rule. This simple act would have removed the solvency threat to financial institutions by allowing them to keep the derivatives at book value until financial institutions could ascertain their true values and write them down over time.

Taxpayers, equity owners, and the credit standing of the US government are being ruined by financial shysters who are manipulating to their own advantage the government’s commitment to mark-to-market and to the “sanctity of contracts.” Multi-trillion dollar “bailouts” and bank nationalization are the result of the government’s inability to respond intelligently.

Two more simple acts would have completed the rescue without costing the taxpayers one dollar: an announcement from the Federal Reserve that it will be lender of last resort to all depository institutions including money market funds, and an announcement reinstating the uptick rule.

The uptick rule was suspended or repealed a couple of years ago in order to permit hedge funds and shyster speculators to rip-off American equity owners. The rule prevented short-selling any stock that did not move up in price during the previous day. In other words, speculators could not make money at others’ expense by ganging up on a stock and short-selling it day after day.

No bailout or stimulus plan has any hope until the uptick rule is reinstated.

[sonofsamphm1c]

05:28 PM on 04/29/2009

Why do you post this drivel?

[THEPILGRIM]

03:43 PM on 04/29/2009

I have to tell you: Obama is making serious mistakes!!!
I am sorry but when you are the President and you know we have the worst financial crises in human history, the one thing you can’t do is to allow Wall Street to continue with business as usual.
Obama is letting Wall Street and Corporate America get away with their frivolous and criminal gambling.
We all know that hedge fund and derivatives have ruined our country.
Our current financial system is bankrupt – it’s finished.
Unregulated speculations on Wall Street put in place with the help of Alan Greenspan and co allowed hedge funds and derivatives to bring this country to its knees.
We have to put an end to those speculations and we have to change the rules on Wall Street.
No bail out money for those banks, they have gotten themselves into this mess and they have to get themselves out of it. If it takes them 30 years – fine.
Corporate America has strangled this country for far too long and the damage is devastating.
We cannot continue like that, change is needed.
Obama under the influence of Summers and Geithner and co is making things worse by backing up those frivolous speculations with tax payers’ money – thereby ruining his presidency and our country.
We must not allow that to happen!
That is the one real measurement Obama is measured by – everything else is secondary – important but secondary

[knosiswar]

01:47 PM on 04/29/2009

Some argue that the Federal Reserve System is shrouded in excessive secrecy. Meetings of some components of the Fed are held behind closed doors, and the transcripts are released five years after the meeting was held. Even expert policy analysts are unsure about the logic behind Fed decisions. Critics argue that such opacity leads to greater market volatility, because the markets must guess, often with only limited information, about how the Fed is likely to change policy in the future. The jargon-laden fence-sitting opaque style of Fed communication, especially under the previous Fed Chairman Alan Greenspan, has often been called "Fed speak." The Fed has also been known to be standoffish in its relations with the media in an effort to maintain its carefully crafted image and resents any public information that runs contrary to this.

[knosiswar]

01:47 PM on 04/29/2009

Some critics argue that the lag in the release of FOMC transcripts, and the limited and carefully worded minutes and statements lead to public unawareness of the issues of major concern to the Fed, and leave the public with an inadequate understanding of the logic and rationale behind the decisions. Some argue that this is a concerted attempt to keep Congress and the public at arm’s length, and that the Fed did not help this public attitude with their prior actions—transcripts of meetings were not released until 1994. Before that time, the Fed refused to give transcripts out on requests, even under the Freedom of Information Act. When a judge ordered the transcripts released in the 1970s, the Fed said they had stopped taking transcripts at all. In 1993, Rep. Henry B. Gonzalez confirmed that the Fed did have tapes and transcripts of the meetings and could have complied with the FOIA requests, but had misrepresented the existence of the transcripts and chosen to ignore questions from Congress. After the existence of the transcripts was revealed, the Fed agreed to release the transcripts on a five-year time lag. The time period has been extended, so that for example 1992's transcripts were not released until 1998

[Carolab]

04:41 PM on 04/29/2009

As President of the NY Fed, Tim Geithner had a permanent seat on the FOMC and set interest rates right along with Greenspan from 2003-2008. Why don't you ask him?

[Carolab]

01:47 PM on 04/29/2009

The "DoJ" should prosecute the guilty parties. Here is a prescription for recovering the funds that AIG has stolen:

(1) The DoJ should file suit in a US District Court for civil conspiracy, fraud and breach of fiduciary duty against AIG and AIG’s directors. The DoJ can prosecute these defendants under the False Claims Act (31 U.S.C. § 3729–3733), the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. § 1961–1968), and the Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1).

(2) The DoJ should add as co-defendants any counterparties to AIG’s fraudulent derivative contracts who were unjustly enriched by being paid-off using any portion of the money that AIG extorted and defrauded from the federal government.

(3) DoJ should file a motion in the case seeking the imposition of a constructive trust, in equity, over the federal government’s money, and/or any assets into which the counterparties converted the federal government’s money.

(4) The DoJ should allow a jury of intellectually honest citizens determine if AIG and AIG’s directors are liable for claims against them; and if they are, the amount of money that each party unjustly enriched by AIG’s extortion and fraud scam should return to the federal government.

(5) The DoJ should take all appeals through to the Supreme Court so that the consequences of violating the laws that AIG has violated will set precedent for prosecuting others.

http://www.thesmartasset.com/2009/03/counterparties_scandal_unfolds.php

[vagabondvet]

01:53 PM on 04/29/2009

The only fraud perpetrated was allowing AIG to continue operations after it was clear they couldn't pay their debt. Anyone who either invested in AIG or had derivatives contracts that thought they could get paid in the event of their default without looking at the balance sheets should lose their shirt. AIG needs to be allowed to fail to get this bad debt off the books. Recessions are supposed to be times when debts are wiped clean by companies going out of business.

[Carolab]

01:54 PM on 04/29/2009

My guess is you don't know too much about AIG -- it's being investigated for fraud in the U.K. for its "derivatives" business.

[knosiswar]

01:35 PM on 04/29/2009

Nationalize the FED, MAKE HASTE TO END the OLIGARCHY OF WALL STREET

----From WIKI
Section 5 of the Federal Reserve Act of 1913 states that the Federal Reserve Banks are owned, through stock issuance, by private member banks.[137] The issue of private ownership has been one of controversy for numerous reasons.

Dennis Kucinich, addressing Congress during the January 2009 session stated, "The Federal Reserve is no more federal than Federal Express....If we could take that (money-issuing) power back and place the Federal Reserve under Treasury, we start to be in a position of being able to control monetary policy on behalf of the United States people."[138]

One of the first criticisms of the private Federal Reserve system was Charles August Lindbergh who criticized the problem of private banks working against the best interests of the citizens: "The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money."[139]

[TheGreatMcGinty]

03:15 PM on 04/29/2009

Once again, you are fundamentally wrong.

The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.

As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute.
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

[knosiswar]

03:43 PM on 04/29/2009

No Sir, it is you that is wrong, I ASSURE YOU. Both Fundamentally and Practically.

I ask you sir, who calls the shots regarding economic policy. Which elected government body is tasked with regulating the currency, The Treasury, who actually regulates the economy, The FOMC. All of whom are Wall Street Insiders.

Section 5 of the Federal Reserve Act of 1913 states that the Federal Reserve Banks are owned, through stock issuance, by private member banks

Who profits from banking, the banksters,

Who loses from banking, you and me, the taxpayer, through the FDIC.

[Carolab]

04:01 PM on 04/29/2009

It was printed RIGHT IN THE NEW YORK TIMES in the article on Geithner the other day, that the FED IS PRIVATE.

Look it up.

It was also printed in the Washington Post last month in an article about him.

[stargazer13]

01:23 PM on 04/29/2009

Dear mod

you have two of my post holding back please release

one post you have held for to long don,t you think

[magibrotherhood]

01:28 PM on 04/29/2009

my p osts have dissapeared as well.......and they were pretty mild

[OkieMon]

01:16 PM on 04/29/2009

the latest bush/repu*g recession begain in oct 2007 and the bush/repu*g depression begain in july 2008....this bush depression (one year or more of negative GDP) and recession which have infected the entire world were triggered by bush 150 dollar a barrel oil and bush/bernanke easy credit going to corrupt banks......

[vagabondvet]

01:18 PM on 04/29/2009

The current depression was caused by the Fed monetary boom which started in the 1990's. It's not Clinton, Bush, or Obama's mess, although their fiscal policy tends to make things worse.

[OkieMon]

01:40 PM on 04/29/2009

bush 4-5 dollar gasoline had a huge effect of doubling even trippling the cost of living which pushed those on the low end of the mortgage ladder into buying necessities rather than paying their mortgages....hence the trigger of the mortgage collapse....

[Bigidea]

01:06 PM on 04/29/2009

What? They are not printing more money? Perhaps they can borrow Robert Mugabe’s printing press and the denominations from his currency.

[stargazer13]

01:20 PM on 04/29/2009

in supposed contract that congress signed they received in 1913

a 142 or 143 million give or take a few dollars now supposedly we can but back our printing rights for that amount which my friends is a lot cheaper then the billions we are giving to them now

so WHY are we not going that route

once our government takes control of the presses interest on debit stops and all money printed after that is interest free we could at least try to pay our bills off then with out the interest killing our paying power !!

[stargazer13]

01:28 PM on 04/29/2009

buy buy buy that t is always getting in my way lololo

[FairTalk]

12:46 PM on 04/29/2009

Let them fail.

[sueinmn]

12:46 PM on 04/29/2009

Them banks will just keep draining us until they make the profits they did before!
I say fire them all and break them up!

[sonofsamphm1c]

01:22 PM on 04/29/2009

Actually the only way they could ever make the profits they were making before would be to make the taxpayer so rich he would gladly allow them to go back to securitizing exotic subprime and credit cards issued to the family dog.

Which is not likely.

[williamg]

12:45 PM on 04/29/2009

Only 7 swine flu de.aths, not 152, says WHO:


"A member of the World Health Organisation (WHO) has dismissed claims that more than 150 people have di.ed from swine flu, saying it has officially recorded only seven deaths around the world."


http://www.smh.com.au/world/only-7-swine-flu-deaths-not-152-says-who-20090429-aml1.html

[CheshireCat2]

12:46 PM on 04/29/2009

Isn't who on first?

[TiffanyHusseinBanned]

01:00 PM on 04/29/2009

But I already bought guns, williamg. I am already outraged and scared.