Banking Crisis: Money-Spinning Operation for the Financial Giants
Federal Reserve Would Serve as Risk Regulator Under Obama Plan
The economic collapse is a manmade disaster created by the Federal Reserve, banking and Wall Street; and this is the same corrupt group who our government has chosen to rectify the problem. - Bob Chapman, The Secrets of the Federal ReserveMay 27, 2009
AP - The Obama administration is proposing that the Federal Reserve serve as an all-seeing regulator to detect activities that could pose risks to the entire financial system.
Under a plan circulating among key lawmakers, the administration also is recommending a new agency to protect consumers and another aimed at protecting investors and maintaining the integrity of the markets. The Federal Deposit Insurance Corp. would get expanded authority to unwind troubled bank holding companies and a new government agency would conduct "prudential regulation," supervising state and federally chartered depository institutions, bank holding companies and insurance companies.
The sweeping proposals are part of six regulatory overhaul recommendations designed to address weaknesses in the financial system that contributed to the current crisis. People familiar with the plan say details still need to be hammered out. They spoke on condition of anonymity because the proposals aren't final.
"The president is committed to signing a regulatory reform package by the end of the year and officials at the White House and the Treasury department are continuing work with Congress on the final phases of a proposal," White House spokeswoman Jen Psaki said Wednesday. "But there is no final proposal in place and any announcement will not be for a couple of weeks."
Obama will be traveling in Europe and the Middle East next week.
Treasury Secretary Timothy Geithner and other administration officials have discussed the regulatory proposals in the past. But the plan circulating on Capitol Hill indicated that the ideas are beginning to come together into a formal package for Congress to consider.
The plan to create two protection agencies — one for consumers and the other for investors — appears to address a potential turf fight with regulatory agencies.
The consumer protection agency would focus on financial products but exclude securities, defusing objections raised by Securities and Exchange Commission Chairman Mary Schapiro. Last week, Schapiro said any new agency whose oversight would include mutual funds, a form of securities, would chip away at the SEC's powers. She said that giving any new entity authority over mutual funds would lessen the government's protection of investors, her agency's core mission.
The investor protection function could be carried out by an agency that merges the SEC and the smaller Commodity Futures Trading Commission, which oversees the trading of oil, gas and other commodities.
By expanding the FDIC's role, the administration would give the government a centralized means for addressing failing banking institutions. Scores of bank holding companies, such as Citigroup Inc. and Bank of America Corp., fall under the supervision of the Federal Reserve. The FDIC now can take over and resolve only the subsidiaries of bank holding companies that take federally insured deposits.
FDIC Chairman Sheila Bair earlier this month suggested to Congress that it give her agency new authority to take over and resolve bank and thrift holding companies — before the overall revamp of financial rules is finished. That stirred a sympathetic response from several members of the Senate Banking Committee.
Lawmakers have been divided on whether the Fed should act as an overarching "systemic risk regulator," with some arguing that such a task would stretch the central bank too thinly. Both Bair and Schapiro have objected to making the Fed alone the new supercop for "too-big-to-fail" financial companies.
Bair has advocated the notion of a "systemic risk council" to monitor large institutions against financial threats, to include Treasury, the Fed, the FDIC and the SEC. Schapiro favors that idea, saying she's concerned about an "excessive concentration of power" over financial risk in any single agency.
Scott Talbott, senior vice president of the Financial Services Roundtable, said his industry group opposes the creation of a consumer protection agency that focuses on financial products, but welcomes overall regulatory changes.
"It is comprehensive and necessary to strengthen the system to prevent this from happening again," he said.
Stress Tests Find 10 Big Banks Need $75 Billion More
May 7, 2009Associated Press - Ten of the nation's largest financial firms need to raise $75 billion more to withstand the losses that would come with a deeper recession, the government said Thursday in a report card that found the banking system viable but still vulnerable.
The Federal Reserve, issuing the long-awaited results of its "stress tests" for banks, found nine of the firms are stable enough that they need no additional capital.
Among the 10 banks that need to raise more capital, Bank of America Corp. needs by far the most — $33.9 billion. Wells Fargo & Co. needs $13.7 billion, GMAC (General Motors' finance arm) $11.5 billion, Citigroup Inc. $5.5 billion, and Morgan Stanley $1.8 billion.
The banks will have until June 8 to develop a plan and have it approved by their regulators. If they can't raise the money on their own, the government said it's prepared to dip further into its bailout fund.
The stress tests are a big part of the Obama administration's plan to fortify the financial system in the wake of last fall's credit crisis. As home prices fell and foreclosures increased, banks took huge hits on mortgages and mortgage-related securities they were holding.
Last fall, the government approved $700 billion to bail out banks and embarked on a series of historic government rescues, including the takeovers of mortgage finance giants Fannie Mae and Freddie Mac and insurer American International Group Inc.
The government hopes the stress tests will restore investors' confidence that not all banks are weak, and that even those that are can be strengthened. They have said none of the banks will be allowed to fail.
The five other firms found to need more of a capital cushion are all regional banks — Regions Financial Corp. of Birmingham, Ala.; SunTrust Banks Inc. of Atlanta; KeyCorp of Cleveland; Fifth Third Bancorp of Cincinnati; and PNC Financial Services Group Inc. of Pittsburgh.
Among the banks that the government did not ask to raise more capital were JPMorgan Chase & Co., brokerage house Goldman Sachs Group Inc., insurer MetLife Inc. and credit card companies Capital One Financial Corp. and American Express Co.
Together, the 19 firms that took the test hold two-thirds of the assets and half the loans in the U.S. banking system...
Describing the purpose of the tests, Federal Reserve Chairman Ben Bernanke said at a news conference with Geithner, "This is to make sure banks have enough capital to offset the losses we know are coming in the next couple of years."
If You Believe Banks Are Recovering...
May 5, 2009James Quinn - President Obama and his cronies at Treasury and the Federal Reserve are trying to mislead the public regarding the health of our banking system. The government has something up its sleeve this time. They are perpetrating the greatest fraud in the history of the world. The conspirators are Barack Obama, Timothy Geithner and the Treasury Department, Ben Bernanke and the Fed, Sheila Baer and the FDIC, and Barney Frank and the Democratic Congress.
- They have colluded to commit taxpayer funds to enrich bankers that brought down the financial system, without getting congressional approval.
- They have delayed foreclosures and have tried to artificially prop up the housing market.
- They have poured billions of stimulus pork into the states, praying for some of it not to be wasted.
- They have confiscated billions in taxpayer funds, bestowed them on reckless banks, and forced them to lend it to anyone with a pulse, again.
With $2 trillion of write-offs to go, how could Treasury Secretary Geithner make the following statement to a Congressional panel late last month, "Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators"? Is he lying or shading the truth?
Roubini's estimate of $1.8 trillion more losses for U.S. banks will cause a slight problem for the U.S. banking system. The entire U.S. banking system has only $1.4 trillion of capital. Therefore, the U.S. banking system is effectively insolvent.
The vast majority of the 8,500 banks in the country are in good shape... [but] the top 19 banks control 45% of all the deposits in the country, [and] these are the banks that are insolvent. Citigroup, Bank of America, Wells Fargo and the other "Too Big To Fail" banks destroyed the economic system...
This brings us to the stress tests for the 19 biggest banks in the land. The most stressful conditions are supposed to be 10% unemployment and a 20% further fall in home prices. That doesn't sound too stressful to me. Considering the government reported figures are a manipulated lie, we already have unemployment between 15% and 20% in the real world. A 20% further decline in home prices is a given. The Case Shiller futures index forecasts that the New York Metro area will fall by 31% by the end of 2010.
The massive overhang of housing inventory, the coming onslaught of mortgage resets in 2010, and the millions of foreclosures in the pipeline guarantee at least 20% further downside in housing prices. I have a feeling these 19 banks are going to need to study a little harder for their test. Professor Geithner is giving them an open book take home exam and gave them the answers. They will still flunk.
William Black is a former senior bank regulator. He is currently an associate professor of economics and law at the University of Missouri. Mr. Black held a variety of senior regulatory positions during the S&L crisis. He managed investigations with teams of examiners reporting to him, redesigned how exams were conducted, and trained examiners. He calls the stress tests conducted on the 19 biggest banks in the country a complete sham. In his own words:
- "You can't conduct a meaningful stress test without reviewing (sampling) the underlying loan files and it seems likely that the purchasers of securitized instruments (not just mortgages) do not even have the loan file data. Moreover, loss ratios vary enormously depending on the issuer, so even a bank that originates (or has purchased a bank that originates) similar product cannot simply take its own loss rate and extrapolate it to the measure the risk on the value of securitized credit instruments.
- "It is vastly more difficult to examine a bank that is engaged in accounting control fraud. You can't rely on the bank's books and records. It doesn't simply take more, far more [employees]. It takes examiners with experience, care, courage, and investigative instincts and abilities. Very few folks earning $60,000 are willing to get in the face of the CEO and CFO making $25 million annually and tell them that they are running a fraudulent bank and they are liars. FYI, this is one of the reasons why having "resident examiners" never works.
- "Examiners certainly can't do the stress testing that Geithner describes or evaluate the reliability of a large bank's proprietary stress test. If they were serious about constructing reliable stress tests, which they aren't, you'd require their analytics to be made public. You'd have the industry fund independent investigations by rocket scientists chosen by a committee selected by the regulators of the soundness of the analytics. You'd also have the industry fund competitions to rip them apart (a bit like we hire legit hackers to test security by trying to defeat it) and show where they produce absurd results. The concept that there are 100 examiners with these skills, suddenly freed up from all other duties, assigned to CONDUCT stress tests is a lie."
As we saw previously, the U.S. banking system will need close to $1 trillion more capital to stay viable. If the Fed was so keen on disclosure and transparency, why hasn't it released the names of the banks that have borrowed from them, and the collateral provided for the loans? Because the Fed has taken worthless toxic paper onto their books and loaned newly printed dollars against the worthless paper. The taxpayers are on the hook.
Government Sets Rules to Leave Bailout Program
May 6, 2009Associated Press — The nation's largest banks that want to exit the financial rescue program will have to demonstrate to the government that they can survive without its support.
In a joint statement, Treasury Secretary Timothy Geithner and other government banking officials said Wednesday that the 19 largest banks seeking to withdraw from the $700 billion rescue program will have to prove that they can borrow money without the support of the Federal Deposit Insurance Corp.
The new rules for repayment of bailout money were issued by the Federal Reserve and the Treasury Department one day before the government is scheduled to provide the results of "stress tests" it ran on the 19 banks.
The statement said that the 19 banks will be allowed to exit the $700 billion bailout program only if they have the enhanced capital requirements called for in the stress tests. In addition, they will have to show they can borrow money without the support of the emergency program established by the FDIC in October at the height of the financial crisis. That program allows banks to borrow money at lower rates because the FDIC guarantees the bank loans. Banks have more than $330 billion in debt outstanding under the program...
The government has said in the past that no large bank will be allowed to fail, and the statement said "the U.S. government reaffirms its commitment to stand firmly behind the banking system during this period of financial strain."
Officials also have said that if banks are unable to raise capital to meet the stress test requirements, they will be able to obtain support from the $700 billion bailout fund.
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