Feeding the Bulls II

Can you really be in suspense about the results of the government's so-called "stress test" of the nineteen biggest banks in America?  The results are due to be released publicly on May 4th, but you can know now by reading this post. The Treasury will pass all nineteen. Does that result strain your credulity?  It should.  Professor William Black of economics and law at the University of Missouri, and a former Savings & Loan prosecutor, says the the stress tests are a "complete sham"[1].  Actual economic data for this quarter is worse than the worse case scenario used in the stress tests. The false assumptions make the test results little more than spin.  To compound the deceit, banks are using every legal accounting trick they can to deceive the public about their true financial condition--which is critical and actually getting worse, not better.  And the government officials in charge of the recovery programs-- former members of the Wall Street plutocracy--are complicit in the deceit[2].  Martin Weiss, investment expert, tells how Citigroup pulled off a first quarter profit in the midst of the meltdown:

• Toxic asset revaluation--the Financial Standards Accounting Board allowed banks to assign higher values to the worthless assets, wiping out billions in loses on April 3rd. Using this gimmick Citigroup was able to increase its after tax profits by $413 million;
• Reserve manipulation--Banks must set aside a reserve to protect against losses every quarter.  How a bank accounts for reserves is discretionary.  Citigroup put most of its current bad debt losses into last year's fourth quarter and underestimated likely losses for this quarter thereby improving its bottom line by $1 billion;
• Mark down of bank debt--the government allows banks to mark down their own debt to market value.  Bank debt is trading at huge discounts because of their precarious financial condition.  Citigroup marked down its own debt to create another $2.7 in bogus profits.

Citigroup reported a $1.6 billion profit for the first quarter, sparking a Wall Street rally, but the total of its accounting gimmicks is $4.1 billion for an actual loss of $2.5 billion.  The collusion between government regulators and the major banks according to Black may be the greatest financial scandal in history.  The government's refusal to close banks violates the prompt corrective action law instituted after the S&L crisis  requiring insolvent banks be placed in receivership {Free Market RIP, 3/24/08}.  The PIPP program violates the FDIC's charter which allows borrowing from the Treasury for deposit insurance purposes not in excess of $30 billion. Under PIPP, the FDIC will guarantee over $1 trillion in junk assets.  The PIPP program may become nothing more than a giant money laundering operation since regulators are open to allowing the bailed-out banks to buy each other's bad assets at inflated prices.  The eventual price tag for this feeding trough is $12.8 trillion. Apparently there are people in the Democratic party who want to maintain US dominance of global financial capitalism at any cost.  If 44 is willing to sacrifice his personal credibility with voters and ultimately the success of his presidency, to help political contributors on the Street of Broken Dreams[3], he is following the right script.

[1] see his Barron's interview, April 13, 2009:   http://online.barrons.com/article/SB123940701204709985.html, and his interview on PBS: www.pbs.org/moyers/journal/04032009/transcript1.html

[2] Treasury Secretary Geithner's chief of staff is Mark Patterson who was Goldman Sachs VP for government relations and a registered lobbyist before joining Team 44.  While a lobbyist Patterson worked against an Obama sponsored bill to limit executive compensation, HR 1257. Previously he was former Senator Tom Daschle's policy director where he worked on a broad range of finance and energy issues.  Because of his extensive lobbying activities, 44 had to grant him an exception to his ethic rules for administration members.

[3]according to the Center for Responsive Politics individual and PAC donations from Wall Street in 2007 and 2008 totaled $463.5 million.