Rage Against The Machine

Class Dunce Passes Fed’s Stress Test

The most important thing to understand about the Federal Reserve’s latest stress tests is what they were not intended to do. Their purpose wasn’t to test whether the nation’s biggest banks could survive a financial blowup like that of 2008 without government assistance.

Rather, the Fed designed its tests to measure the effects a hypothetical crisis would have on banks’ regulatory capital. Capital is the financial cushion a company has available to absorb future losses. While the Fed would like for us to believe that regulatory capital is the same thing, it’s quite different. And too often it bears little resemblance to reality.
That’s why the results of the Fed’s “comprehensive capital analysis” are more about public relations and manufacturing confidence than they are about disseminating reliable information on banks’ health.

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.

My view:

I continue to be amazed at the schemes the Feds come up with to pretend most, if not all, the banks are in good shape and reassure a jittery investing public that "all is well".

From this article one can plainly see that allowing a bank with negative net worth to pass a stress test is beyond ridiculous, it is simply obscene.

All is not well, all is hell!

Truly this is a confidence game that even Bernie Madoff would envy.

By telling the public, through the media, that all is well, the Feds simply set the public up for even larger losses later.

The key to understanding the financial system is to have some comprehension of the bond market.

As governments continue to rack up massive deficits and debts, it is critical for them to convince/deceive the bond market into believing that they are "good for the money" and to continually increase the supply of debt.

The day that the bond market becomes uncertain, or downright nervous, is the day the central bankers lose control.

This is where the public is truly deceived.

The general population believes our current problems lie with "greedy bankers" taking too many risks.

While bankers are indeed generally greedy, the primary problem does not lay at their feet.

They are acting as they have throughout history.

Much like wolves, who instinctively chase the weakest animals to catch and devour them, bankers feast on the weakest in society. They are doing what instinct dictates.

The true problem lies with government.

Were regulators aware there were problems in the housing market and with mortgage backed securities?


But nothing of significance was done.

Now we have a greater crisis in the making as sovereign debt approaches and surpasses the toxic limit.

Yet the Feds and Euro Feds and central bankers worldwide continue to feed the debt beast. The implicit guarantees to banks before the financial crisis have turned into explicit guarantees.

One day soon, we know not when, the bond market will wake up to this madness. This is why I am most interested to watch the results of Monday's CDS auction.

Historic CDS auction approaches

When it does, watch bond yields and interest rates skyrocket.

And the guilty Feds will blame the banks while taking no responsibility for their own complicity.

This is history's greatest Ponzi scheme, and its instigators will avoid responsibility at all cost.

This is the verdict: Light has come into the world, but men loved darkness instead of light because their deeds were evil.
         John 3:19 NIV