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Confirmation That Only Sovereign Bond Losses On "Trading Books" Will Be Considered Validates Stress Test Irrelevancy
The circus in Europe can't come to an end soon enough. As Zero Hedge posted and speculated previously, according to a draft document, it has now been confirmed that banks will only be tested for sovereign debt exposure just on trading books, not on debt held to maturity. Guess what: about a month ago, all banks almost certainly decided to quietly reclassify their hundreds of billions of sovereign exposure from "trading" to "held to maturity," thus taking advantage of the same FASB 157 accounting abortion that America has gripped tightly on to for almost two years now, as accounting fraud follows the Bernanke Put in going global. If this is supposed to inspire confidence, then the market has truly lost it. As we explained last week, "the haircut will only pertain to
trading books. In other words this is Europe's equivalent of FASB 157:
everything that banks hold "to maturity" will not see a major haircut,
and very likely not see any haircut at all. Which simply means that all
European banks that hold such debt will merely reclassify their Greek
exposure from trading to a "held to bankruptcy at par" category. The
surreality of European banking assets (which as we pointed out
previously is a $100 trillion circle jerk where one bank's assets are another bank's liabilities) has now passed well into the twilight zone." In other completely irrelevant news, the micro trading books will see the following haircuts, as presented by Bloomberg.
The 91 banks being stress-tested were only examined on European sovereign debt losses for the bonds they trade, rather than those they hold to maturity, according to a draft European Central Bank document. "The haircuts are applied to the trading book portfolios only, as no default assumption was considered," according to a confidential document dated July 22 and titled "EU Stress Test Exercise: Key Messages on Methodological Issues." The tests will assume a loss of 23.1 percent on Greek debt, 14 percent of Portuguese bonds, 12.3 percent on Spanish debt, and 4.7 percent on German state debt, according to the document obtained by Bloomberg News. U.K. government bonds will be subject to a 10 percent haircut, and France 5.9 percent. The tests assume the weighted average yield on euro-area five-year government bonds will rise to 4.6 percent in 2011 from 2.7 percent at the end of 2009.
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5150
No worries... now they can print the money faster than they can see or think it. Coming to central banks everywhere:
Faster than light electricity
Interesting article. Combine this with co-location and the HFT computers might literally be front running the market. :>)
Software agents that understand the meaning of words.
Cool article.
Although, unless this technology can be applied to a tastier snack chip, lubricant, or cheese product, it's going nowhere.
Lubricant?
On second thought, I don't want to know. :>)
Under FASB 157, though, when securities were converted from Trading to HTM, the regulation states that they would have to be valued at the time of conversion using values from the last observable price.
This is pure Calvinball. And Calvin is a fucking retard.
Wow, time to load up with ink stocks ;)
What's with the open? Who stopped pumping ES?
The market woke up from its Fed QE2 induced coma. Do not worry, the market will be lulled back to sleep by Bernanke soon again, and will continue to roll up hill.
What's wrong with conspiring to conspire? Governments and banks have been doing it forever. Now, they just can't cover it up like they used to.
You make a good point. If we can't stop the corruption, it might as well be out in the open so we can pick and choose our desired flavor of corruption. The Romans did this from the start and were a roaring success for way longer than America.
"In corruption we trust."
Gives new meaning to the term "Free Market"
meanwhile all the banks eye one another suspicously from across the table and guard all their chips. Just another hop along in the credit crunch, the rates are pointing in the right direction, this will just add to the momentum.
Flights of Fantasy always end well in the world of make believe.
I heard some idiot talking head this morning saying that the stress test "was expected to produce mostly good news". Wow, what insight. I would be surprised only if it didn't produce mostly good news. When you stack the deck and then invite your friends over for a night of poker, you're only surprised when you don't win, not if you do.
As I repeatedly say, egregious lies are not intended to sway opinions or change minds, only confirm the opinions of those who wish to be confirmed.
Well... No coincidence the EUR/USD hit 1.30.. Big guys got out of their longs.. I see a drop to parity now.. Over time of course..
Then commodities and PM's will make a run when both Europe and U.S. initiate QEII
From the article we can all conclude that the european "circus of horrors" has let loose a hideous Bank'enstein.
Soon to be the Hindenbank.
Bankula will give rise to a generation of undead that will suck the life out of the EU's working class.
Again, the irony being that if the sov. debt instruments were in trading accounts, they can buy and sell and take profits and losses on change in price. However, if holding to maturity, the risk of "default or repudiation" could make for wiped out or greatly reduced capital on those investments. So much for capital preservation by bank investment portfolios. Any investment should be able to be sold if circumstances change.
A crock!
Tyler, as far as i know, if you reclasify bonds in trading book to HTM, you will do so at mark to market value. At least this is what accounting rules say. Maybe they got a waiver to reclasify them at historical buy price? But i doubt that.
Amazing.
So my house isn't really underwater unless I sell it?
WTF is that? Fucking brokerages make margin calls, should I say, "but I'm holding to maturity, so my valuation shows a massive profit"?!?
Your house is and never will be underwater unless a dam breaks and floods your house. No loan was every made. See Modern Money Mechanics by the Federal Reserve for reference information.
http://www.rayservers.com/images/ModernMoneyMechanics.pdf
http://upload.wikimedia.org/wikipedia/commons/4/4a/Modern_Money_Mechanics.pdf
http://en.wikisource.org/wiki/Modern_Money_Mechanics
Yeah, it's pretty funny they still have these people convince that a loan was given, then on the backside they disclose exactly how the fiction has been working.
It's right there in black in white and these people think they are paying on a loan.
I'm nearly convinced that the way these people live with themselves is that they very publicly tell all who are about to be screwed how, where, when and why they will be screwed well before the act. In their minds, everyone has been warned fair and square, so let the screwing begin.
The people that are going to be screwed are the lemmings that are convinced they are getting a loan when in reality no loan existed. Yes, a price is going to be paid.
Its quite funny that everyone believes Benny yet they fail to read the details of what they are referring to. Well, it would be very funny if it were not for the fact billions are going to have to go from the result of the lies.
I do laugh my ass off everytime someone goes... I can't pay on my loan. Funniest shit ever, you really couldn't dream this shit up.
777 I hear ya bro,
They talk more of the same shit.Straight from the horses ass.This is whats on the euro' banks balan'sheets:
http://www.milkproduction.com/NR/rdonlyres/7EC68059-E94F-4DEA-A036-CB321...
Debt held to manure'ty indeed.
@trav7777 +10000
What a world we live in, when a bank is considered "healthy" by having some 6% capitalization farce ratio. I call that 15X margin! Ahh, the beauty of fractional reserve banking. Who said mathematical equations are only used for the good of mankind?
Obi-wan has taught them well.
Color me not shocked. The desired results were determined and then the test designed to achieve said results. The ends justify the means.
The US has doubled their greatest export in less than 6 months:the financial innovation circle jerk.
One wonders exactly why this farce is anything but a confidence drain, but then one is has problems with authority, and being told what to think.
Actually lizzy in a perverse way it will build confidence, at least for a while. For those dependant upon the Ponzi, to see that the Ponzi has been escalated to levels that were previously unthinkable is a great confidence boost that the Ponzi can, and in fact will, live another day.
Long live the (global) Ponzi!
You have perfectly articulated how a Ponzi scheme works.
"The circus in Europe can't come to an end soon enough"
Meanwhile the bankers pick our dilly
Was anyonone as stupid as to expect something different when the stupid European slaves have the best Masters from the US?
Finally, the lunatics have taken over the asylum. It should be all downhill from here. We need a new Hieronymus Bosch to depict the insanity.
I see no problem with these shenanigans...in fact the market is ramping up as I type so they must like the obfuscation as well.
Anyone who expects some big revelations about european banks in these stress tests is a naive fool. Sorry. All big banks will pass the test and the life goes on as before. Much ado about nothing.
Speaking of which, we opened and are currently sitting above the 50DMA. Guess we are prepped to be ran to the moon regardless of the ECB's announcement.
Why do they even call them tests? Is it really a test if the teacher was told beforehand that her job depends on all students passing.
Becuase it is a test to see if the general public believes in their stupidity.
BTW folks, just in case your indoctrination is slipping a bit, CNBC is re-airing the refresher course called "Wall Street" tonight at 8 and 10 PM.
Remember, greed is good. And there's no place like home.
http://www.imdb.com/title/tt0094291/
http://www.imdb.com/title/tt0032138/
Transfers between Categories of Investments
15. The transfer of a security between categories of investments shall be accounted for at fair value.
At the date of the transfer, the security's unrealized holding gain or loss shall be accounted for as follows:
a. For a security transferred from the trading category, the unrealized holding gain or loss at the date of the transfer will have already been recognized in earnings and shall not be reversed.
b. For a security transferred into the trading category, the unrealized holding gain or loss at the date of the transfer shall be recognized in earnings immediately.
c. For a debt security transferred into the available-for-sale category from the held-to-maturity category, the unrealized holding gain or loss at the date of the transfer shall be recognized in a separate component of shareholders' equity.
d. For a debt security transferred into the held-to-maturity category from the available-for-sale category, the unrealized holding gain or loss at the date of the transfer shall continue to be reported in a separate component of shareholders' equity but shall be amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The amortization of an unrealized holding gain or loss reported in equity will offset or mitigate the effect on interest income of the amortization of the premium or discount (discussed in footnote 3) for that held-to-maturity security.
SFAS 115
http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175820923200&blobheader=application%2Fpdf
Timmy taught them well. How the financial media clowns can present this fraud as such is a crime. You won't here anyone on air say this whole test is a complete fraud.
They put Timmy in charge because he has alot of experiance at how to trick people, that trait seems to run deep with in these fiscal flunkies background.
Never seen a crime with so many accomplices
since the Iraq war
DOW/SP500 daily chart is bullish for now ...
http://stockmarket618.wordpress.com