The Banks Way Around The Stress Test Results
source: http://www.ft.com/cms/s/0/963b0ad2-3be0-11de-acbc-00144feabdc0.html
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- tbowman131
- added this
Yet again, I find myself having to get my US economic news from an international paper. The article says:
"US banks have been given government assurances they will be allowed to raise less than the $74.6bn in equity mandated by stress tests if earnings over the next six months outstrip regulators’ forecasts, bankers said.
The agreement, which was not mentioned when the government revealed the results on Thursday, means some banks may not have to raise as much equity through share issues and asset sales as the market is expecting. It could also increase the incentive for banks to book profits in the next two quarters. "
The government is giving the greedy, wild-risk-taking banks who created this crisis even MORE incentive to drive up short-term profits. According to the Financial Times, the stress test showed that by increasing short-term earnings, banks could be saved from raising up to $20bn in required capital.
I'm not a betting man, but if I was, I would guess that most of the banks will indeed show high enough "earnings" to make the stress test irrelevant. My own suspicions are that the banks will take advantage of the change in the mark-to-market accounting rules and look ridiculously profitable over the next two quarters.
Here is my parting food for thought:
Mark-to-market accounting was put into place on November 15 2007, http://www.cfo.com/article.cfm/10097878/c_10098290, (at the peak of the equity markets) and was changed back on April 2 2009, http://www.ft.com/cms/s/0/339b6e8c-1f8c-11de-a7a5-00144feabdc0.html (at the bottom of the equity markets). Coincidence? Please click the links and read the facts for yourself.
"US banks have been given government assurances they will be allowed to raise less than the $74.6bn in equity mandated by stress tests if earnings over the next six months outstrip regulators’ forecasts, bankers said.
The agreement, which was not mentioned when the government revealed the results on Thursday, means some banks may not have to raise as much equity through share issues and asset sales as the market is expecting. It could also increase the incentive for banks to book profits in the next two quarters. "
The government is giving the greedy, wild-risk-taking banks who created this crisis even MORE incentive to drive up short-term profits. According to the Financial Times, the stress test showed that by increasing short-term earnings, banks could be saved from raising up to $20bn in required capital.
I'm not a betting man, but if I was, I would guess that most of the banks will indeed show high enough "earnings" to make the stress test irrelevant. My own suspicions are that the banks will take advantage of the change in the mark-to-market accounting rules and look ridiculously profitable over the next two quarters.
Here is my parting food for thought:
Mark-to-market accounting was put into place on November 15 2007, http://www.cfo.com/article.cfm/10097878/c_10098290, (at the peak of the equity markets) and was changed back on April 2 2009, http://www.ft.com/cms/s/0/339b6e8c-1f8c-11de-a7a5-00144feabdc0.html (at the bottom of the equity markets). Coincidence? Please click the links and read the facts for yourself.
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kennymotown
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I have my doubts about Tim Gietner running the recovery, I think it look's too me that they are trying to reinflate the bubble once again. We need to build the economy from the bottom up, workers wages have been stagnant for 20 years. Do these guys actually get it, we out here are fighting for crumbs and it's us who will have to eventually bring the economy back. Huge corrections have to be made in bringing good paying jobs back to our shores, and yes in my opinion tariffs are a part of it. Protectionism and industry where we actually make something is the only way to add labors value to products from raw materials.
- 3 years ago
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kennymotown
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pjacobs51
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kennymotown:
Agreed!
- 3 years ago
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pjacobs51
