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The Fed's Stress Test Was Merely The Latest "Lipstick On A Pig" Farce
Last week we learned two things: that Jamie Dimon specifically telegraphed he is now more powerful than the Fed, and that the US economy is back down to the same March 2009 optical exercises in financial strength gimmickry to stimulate rallies. Recall that on FOMC day, the market barely budged on Bernanke's ambivalent statement and in fact was in danger of backing off as the readthrough was that of no more QE... until JPM announced a major stock buyback and dividend boost. The catalyst: a successful passing of the latest and greatest Stress Test, which according to experts was "much more credible" than all those before it. Wrong. The test was merely yet another complete farce and a total joke. But as expected, the test had its intended effect: financial shares soared across the board, and banks promptly took advantage of investors and robot gullibility to sell equity into transitory strength. Bloomberg's Jonathan Weil explains.
How stressful were the Fed’s tests? One anecdote stands apart: Regions Financial Corp. (RF), which still hasn’t paid back its bailout money from the Troubled Asset Relief Program, passed.
The footnotes to the company’s latest financial statements tell the story. There, the Birmingham, Alabama-based lender disclosed that the loans on its books were worth $8.1 billion less than what its balance sheet said, as of Dec. 31. By comparison, the company’s tangible common equity, a bare-bones measure of net worth, was $7.6 billion.
So if it weren’t for the inflated loan values, Regions’ tangible common equity would have been less than zero, with liabilities exceeding hard assets. In short, the test was a joke, although it had its intended effect. Shares of Regions and other large banks soared, and Regions raised $900 million selling common shares on Wednesday. The company, which hasn’t reported an annual profit since 2007, plans to use the money to help repay the $3.5 billion it got from the Treasury Department in 2008.
Tangible common equity became the capital benchmark of choice for many investors during the last U.S. banking crisis, because the government’s main capital measures lost credibility. It excludes preferred stock, which in substance acts more like debt than it does equity. It also excludes airy intangible assets such as customer relationships and goodwill. (Goodwill is the bookkeeping entry a company records on its balance sheet when it pays a premium price to buy another.)
To calculate tangible common for Regions, I took the company’s $16.5 billion of shareholder equity and subtracted its preferred equity and intangibles. That’s how I got $7.6 billion.
Then I went a step further and adjusted Regions’ remaining net worth to get a more realistic measure. In a crisis, what matters to investors and counterparties about a company’s assets is what they are worth, not what they are carried at on the company's balance sheet. Just ask anyone who got a margin call back in 2008.
Fortunately, companies are required to provide quarterly footnotes showing the estimated fair-market values of their financial assets and liabilities, including loans and other items that appear on their balance sheets at historical cost. Factoring in those adjustments, Regions’ tangible common equity was negative $525 million as of Dec. 31.
And yet RF passed with flying colors.
It gets worse:
The Fed’s analysis, by contrast, didn’t take changes in liquidity or market conditions into account when estimating the future losses on banks’ loans or securities, except where the companies were using fair-value measurements for such assets already. A company might have large paper losses in its “held to maturity” or “available for sale” bond portfolios, for instance. The Fed said such losses only counted if they were due to a bond issuer’s inability to pay its obligations, as if that were the only factor affecting bond prices.
Similarly, were Regions to sell its loans, it wouldn’t be able to realize the $73.3 billion it showed as an asset on its balance sheet. In the footnotes, Regions estimated its loans were worth $65.2 billion using the values that “a market participant would use in a hypothetical orderly transaction.” The Fed ignored these values.
In a press release, Regions Chief Executive Officer Grayson Hall said the Fed’s capital review “demonstrates the strength of our company.” If you want to see how strong Regions really is, though, the footnotes offer a clearer picture.
Regions probably would have failed years ago if not for its federal backstop. Instead, it now has a stock-market value of $9.1 billion. Clearly the Fed wanted it to attract new investors, and those who put fresh capital into Regions this week believe the government won’t let it die. That about sums up the company’s value proposition. In other words, we’re all still on the hook.
What is sad, is that even the general public is now increasingly more aware of these outright gimmicks by the Federal Reserve-Wall Street cartel, and refuses to participate in stock rallies premised on fraud and erroneous data interpretations, forcing the banks themselves to inflate their own asset values even higher in a coordinated incestuous circle jerk of intra-Primary Dealer stock purchases, resulting in an even greater disconnect with the underlying reality. Because at the end of the day, what it all boils down to, is simple cash flow. And that, despite all the Fed's mock tests and words of encouragement, in a world of perpetual contract law abatement, is lacking more than ever. After all, why pay for something today, when the administration itself tells you not to?
Alas, the relentless encroachment of socialism is something that not even the most naive and gullible 'stress test" can mask.
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What fraction of the Fed is "owned" by JPM???
Not much, just the Glans, as it doesn't matter if the Frenulum or the Shaft is owned or not. If you can bite off the head, the snake will die; therefore, they have the Glans in a vice grip and have the Fed under their total control. The twitch you notice on Ben's lips is because he's unconfortable of the pressure exerted downstairs.
After reading that, I feel "unconfortable".
Fuck this. I'm buying more gold and silver!
These look sharp...
It's like that kid in pre-school, you know, the one who takes a massive dump in the corner of the room and still gets a gold star...
That reminds me of those running our govt, who frequently seem to have failed their way to the top.
Going long on pig lipstick.
long maybelline...
Maybe she was born with it ...
Now that we know the fed is Jamie Diamond's nut licker when should we expect JPM to trash equities and force the fed to print more money for them ?
That is a dead on comparison. You've nailed it!
There's still the 7 TRILLION dollar question about MERS, and chain of titles.
http://www.economonitor.com/lrwray/2012/03/16/the-7-trillion-dollar-ques...
Big Banks will not survive, if MERS, and chain of titles are widely disputed in court, and homeowners win.
Nothing the Supreme Court can't fix. They've already ruled on corporate personhood, simply a matter of ruling that defaulters aren't persons.
They will litigate and ex post facto away our property rights by a thousand cuts.
I understand that almost nothing in goverment and finance is 100% as described but this seems a bit much - Also isnt the lender of last resort supposed to be a backstop?
There have been a number of time throughout history when "litigation" against banks has been tried, revolutions aside, exactly how many times have the "homeowners" or "average Joes" actually "won".
Excluding revolutions, the answer is is fucking never.
In addition, riddle me this; what happens when your "lender of last resort" is insolvent?
The speed at which the government is moving to lock down the people of the U.S.S.A tells me things are pretty darn close to collapsing.
http://m.whitehouse.gov/the-press-office/2012/03/16/executive-order-nati...
Extremely ominous.
(d) improve the efficiency and responsiveness of the domestic industrial base to support national defense requirements; and
Sounds like when they had our manufacturing base during WWI & WWII become weapons manufacturers.
Are they getting ready for the Iran attack & subsequent WWIII?
They already have all the weapons they'll need for WWIII.
http://www.csmonitor.com/World/Europe/2010/0504/NPT-Obama-reveals-size-of-US-nuclear-weapons-arsenal.-Will-Russia-respond
it's not just the weapons, it's the jobs.
Looks like this is the jobs program.
"Alas, the relentless encroachment of socialism is something that not even the most naive and gullible 'stress test" can mask"
This is not Socialism, this is Fascism.
Wether one agrees it's the right thing or not, Socialism is ultimatelly and in the extreme about equalizing everybody's wealth.
The shit we see going on today is exactly the opposite: it's all about moving the wealth from the many to the well connected few. The only Social-anything in this crap is that it's the whole Society that's paying for these parasites.
Right on the money. Dispensing with the silly labels would improve the dialog. Is wealth inequality too far in any direction? If so, prudent government should legislate to move the balance in the opposite direction. Let the imbalance go too far and you get social instability and/or a poor economy. But yeah, we're closing in on the fascist extreme too quickly.
Thank you.
Get ready for a DIVE!
The Fed's Stress Test Showed Zero Integrity
http://www.wallstreetexaminer.com/blogs/winter/?p=4663
Let's make this simple...
Ben knew, as did all the other unsurprised bankers who were ready to sell, that this was planned and Jamie D didn't do anything they ALL had not already agreed upon.
"... the relentless encroachment of socialism ..."
Bull shit, it isn't socialism, it is crony capitalism at its worst!
Just call it 'corporatism' and split the difference.
Bingo, Gene.
When others try to tell you its either communism or socialism, you know they're uneducated dipshits.
I look at the MBA's around me regurgitating Billo's talking points from the night before and I think "conditioned and indoctrinated"
and then there's Kudlow and his faux "free market capitalism is the best path to prosperity".... AS IF.
Sometimes its easier to enlighten the "under-educated" than the GS-58 highly educated beneficiary of the ponzi.
Where I live, the hardest part of their day is waking up in the morning.
Fascism/corporatism.
What's with all the fear of socialism? Fascism's worse.
Seems only the right-wingers I know keep bringing up that straw man. They like fascism? Suckers.
Mix in a little theocracy with the corporatism/fascism and you have a real winner...
http://au.ibtimes.com/articles/314650/20120315/arizona-birth-control-bill-fire-women-religious.htm
Bill Moyers interview this morning is very good. Citi merger w/ Travelers
Christine Lagarde is optimistic about the world economy. Is that Total Collapse gonna come anytime soon? Not? Boring world we live in.
BTW: Iraq is already exploring new transport roads in case of Iran shutting down the Hormuz Strait, which will then not be a serioues issue. Boring world we live in.
Trade routes are being established all over the middle east, period. Not because some rogue state decides to "do it in case," but because WE want it to happen.
Dollar hegemony is being threatened. Hence the encirclement of resources, the establishment of trade routes, and the control of the existing trade routes.
Syria's Mediterranean locale is what is important. The safety of its citizens is the cattle feed fed to you.
Reading mainstream headlines creates a desired effect. You're the desired effect. Putz.
LWA...
Who lifted the lid on the toilet bowl and let you out,you piece of shit you.
double post
ooops,tripple post
Iran?
Got to authorise payments for higher fuel costs
Bankster Occupation!!!
Reocvering from a credit/housing bubble is murderous. China, Spain, UK and US are ALL recovering from the massive hangover.
http://confoundedinterest.wordpress.com/2012/03/18/housing-a-tale-of-four-countries-u-s-u-k-china-and-spain-bubbles-bursts-and-flatness/
Not one word about DERIVATIVES. Not from the FED, not from Bloonberg, not even from ZH...
I very rarely reply to trolls or morons, and even more rarely do I reply to a mixture of the two. But this comment for some reason irritated me more than most. Because you put ZH in the same sentance as bloomberg, and the fed. ZH is without a doubt one of the premier financial blogs on the internet and without them alot of finacial scandals would be swept under the rug and we would never know about them (infinite re-hypothecation through the City of London, extent of HFT's etc..). To say that ZH is hiding the fact of derivatives, and other types of trades is simply rediculous. Now I do think you actually have no idea what they are but we will leave that aside.
What I will do is though, put a few ZH articles from my saved folder of ZH talking about derivatives and other types of products. Then you can apologize to the ZH crew underneath my comment for your ignorance.
http://www.zerohedge.com/news/five-banks-account-96-250-trillion-outstanding-derivative-exposure-morgan-stanley-sitting-fx-de
http://www.zerohedge.com/news/presenting-kyle-bass-analysis-shortening-collateral-chains-or-gradual-evisceration-shadow-banki
http://www.zerohedge.com/article/otc-derivatives-dtcc-too-big-fail
http://www.zerohedge.com/article/fitch-financial-companies-hold-997-all-derivative-contracts
http://www.zerohedge.com/content/biggest-financial-company-you-have-never-heard
There are hundreds more, just use the search bar on the right hand side before you troll next time.
Funny - there actually is a search function on this website.
Unfortunately, there is no function for "jump to conclusions if you are astoundingly lazy": our readers seem quite adept at that on their own.
$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months
Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb?
You mean he has to actually go and do some work himself? Now what type of person are you Tyler, everything must be given on a silver plate (no silver manipulation pun intended) to the idiots these days.
Your forehead must be getting quite sore from that brick wall no?
Mein Herr
You need to go for a confession. Placing Zerohedge at the same level as the Fed is a grave sin.
You have sinned. Go confess.
Professor Bernanke grades using one hell of a curve...let me guess, it was a closed book test?
If this is fascism... then why not put Dimon and Blankfein in a gulag somewhere (converted Andy Gump outhouse) and throw away the key... and nationalize all assets? Let Ron Paul pick the other crooks that need to be put away... see ya, Ben, Gensler, Schapirio, Holder, etc, etc...
But, if we put Holder in the pokey, how will (Mexican) Drug cartels get their assault rifles??
Presenting... Miss Equities, 2012:
http://3.bp.blogspot.com/-JoUd0vfyyn0/TzGE2scR8_I/AAAAAAAAAdE/Twd1Wpajjq...
Is it just me or everyday brings some new BS about how everything's OK? Some new justification for believing things are "turning the corner".
It's like the boy who cried recovery or yelling recovery in a crowded movie theatre. It's becoming sad.
How long before, like the old Soviet Union, even the sheeple people ignore everything these idiots say?
Just go on Facebook for 2 minutes and you will see how fucking stupid the general population is! As everyone is a self absorbed celebrity now where new news is old news in 2 hours, Ben could release that he fucks baby goats tomorrow but by Tuesday everyone has forgotten about it! Hence why Obama's marketing machine will ensure he wins with a landslide!
these banksters sure know the tunes to play, don't they?
and how to orchestrate the media and the momos; paper begets paper+ and banksters' kids have new shoes, phones, cars, and charge accounts at the studentUnion
one zombieBamaBank raises ~$1 B in equity just by having the foresight to have the stock offering ready, no less
centralPlanning has its rewards, distributed according to the cabal's secret plans and wishes
some little restaurant ought to go with a menu around this: benzelbubBrugers, pelosiShakes, taxpayerGravy, unionGrits, bakedPensions, hankyPancakes, MIC pie; you can pay in cash or junk sulver coins @ melt, but any unfunded liablities at the register or consumer credit for tipping, and everything costs twice as much! EAT ME!!!
I took 2 weeks off from MSM at your recommendation.
It was worth it. I got to go back to it though, for entertainment purpose.
Dig deeper into Regions around the South and there you will find mega churches and bloated loans for stuff that has yet to either be started or finished.
Hell one branch I know of is trying to lease out it's second floor.
First it's lipstick, then comes perfume, then a nice wig, and finally to make the package attractive, a bottle of Jack Daniels in the deal. Put them all together could be love "after a fifth" sight.
Smoke and mirrors, bot & paid for gov'ts, outlaw bankers, rigged markets and a self-serving federal reserve all of which are defended and protected by all sorts of institutions such as MSM, police, SEC, CFTC, CIA, TSA, FBI, army et al stand against the American population.
You'd think that it would be the other way around....right????
Buy physical gold and silver!
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Goldman, Sachs & Co.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. LLC
This is the list of american primary dealers copy/pasted from Fed website. The rest are non american.
- Bear Stearns bought up a lot of shit via leverage in order to avoid their holding's price to tank. It went excrement.
- Lehman bought up a lot of shit via leverage in order to avoid their holding's price to tank. It went excrement.
- MF Global bought up a lot of shit via leverage in order to avoid their holding's price to tank. It went excrement.
Who is the next out of the above list to go shit and deadline of collapse?
Since BAC has gained 100% in 11 weeks, some PD has bought up BAC via leverage.
I don't know if Merryl Lynch is allowed to buy BAC, but if they are, I vote that Merryll Lynch will be the next one to go excrement by getting stuffed with BAC that nobody wants. Time of Death: April 30th, 2012.
Any more betting?
I would like to see the results of a stress test that includes interest rates spiking and the bond market imploding. It would be a much more realistic judge of how stable the banking sector is.
That would grenade their little recovery rather quickly.
They'd launch outright QE so fast you wouldnt believe it.
Let's make them all mark to market and then see who's left standing. Bet they'll all be DOA.
Asset implosion booyaaaah