The big bankers would have been beaten as a political force

james galbraith obviously will win no points with our handlers by telling the truth...

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail -- with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

[...]

[I]n a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them.

President Obama didn’t see this. Or perhaps, he didn’t want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.

gosh... seems like decapitating the bankers would have been one of the most valuable things obama could have possibly done and what a wonderful opportunity he had - and blew it...!

here's a noteworthy galbraith quote...

Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia. Instead, predation has become the dominant feature — a system wherein the rich have come to feast on decaying systems built for the middle class. The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth. But it is the defining feature, the leading force. And its agents are in full control of the government under which we live.

the defining feature...? yep... the leading force...? yep... in full control...? yep, yep and yep...

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Stress test results

hmmmmmmm...

Nation's Largest Banks Need $75 Billion, Federal Stress Tests Find
The nation's largest banks collectively need another $75 billion in equity to ride out potential losses due to the recession, according to long awaited government stress tests released today. Nine of the 19 banks do not need any new capital at all, including J.P Morgan Chase and Goldman Sachs.

pardon the crudity, but fuck goldman sachs...

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GMAC needs to raise $13.1B in capital but there's something in the story I don't get

ok, here's the snippet with the part i don't get in bold...

The Federal Reserve has ordered the financing arm of General Motors to raise $13.1 billion in new capital to ensure the firm's stability in the face of heavy losses in mortgage and auto lending and costs related to taking over new loans for Chrysler dealers and customers, said sources familiar with talks between government and industry officials.

The sum is among the biggest required for any U.S. financial institution, and could prove difficult for GMAC to raise because of the limited nature of its business and poor quality of its loans. The firm has struggled in the past to raise money from private investors and has already received $5 billion in federal assistance. It is likely that the federal government would end up providing much, if not all, of the needed capital, but it remained unclear where that money would come from.

how does that square with the bofa story from yesterday (see earlier post) that said bofa needed $34B in capital... i'm not a math whiz but it seems to me $34B is a significantly larger sum than $13.1B... am i wrong...?

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Nouriel Roubini throws a little cold water on the premature celebration of the big banks "passing" the stress test

roubini points out a fact that's also occurred to me, namely, that of COURSE some of these godzilla banks are passing the stress test after the u.s. has thrown gazillions of dollars at them... shit... i'd be looking pretty good too if somebody showered me with money and then made a judgment call about the strength of my bank account...

According to preliminary results leaked to the New York Times, all 19 banks with assets above $100 billion that are subject to the Treasury’s ‘stress test’ are bound to pass the test. The official results are due by the end of April but the upbeat mood in the banking sector was already reflected in the 30% stock price rally in the run up to the Q1 earnings season. The major three commercial banks had already noted that they were profitable in the first two months of the year, and Wells Fargo announced that it expects to post a record net income of $3 billion when it reports results on April 22 (with combined net charge-offs of $3.3 billion for both Wells and Wachovia from $6.1 billion in the fourth quarter). Meanwhile, Goldman Sachs reported larger than expected Q1 earnings (ex December loss due to earnings calendar move) while at the same time raising fresh capital through a $5 billion stock sale in order to pay back the $10 billion in TARP money received last year.

A look below the surface reveals some caveats to this positive picture. As Nouriel Roubini points out in a recent writing: “In brief, banks are benefitting from close to zero borrowing costs and fewer competitors; they are benefitting from a massive transfer of wealth from savers to borrowers given a dozen different government bailout and subsidy programs for the financial system; they are not properly provisioning/reserving for massive future loan losses; they are not properly marking down current losses from loans in delinquency; they are using the recent mark-to-market accounting changes by FASB to inflate the value of many assets; they are using a number of accounting tricks to minimize reported losses and maximize reported earnings; the Treasury is using a stress scenario for the stress tests that is not a true stress scenario as actual data are already running worse than the worst case scenario.”

Other commentators also point to the fact that many of these banks were among the main recipients of AIG bailout funds in previous months, e.g. Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion), according to New York Times data. The firms involved dismiss this factor as immaterial for Q1 earnings. Nevertheless, the GAO noted in a report at the end of March that Treasury should require that AIG seek additional concessions from employees and existing derivatives counterparties.

i refer interested readers to the post from hernando de soto about toxic derivatives i put up just the other day...

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