Stress Test Details
Share rebounded as the fear yesterday about financials was forgotten, and they were bid up again. Bonds responded accordingly.
Everything else went sideways.
In the news today…..
Stress Tests – more detail is coming out regarding how stress tests are performed. The tests give more emphasis to loans, and not as much emphasis to other investments (like toxic securities). The test assumes that regular loans could lose 20% of their value to the bank if the recession deepens. Under one scenario, the toxic securities are assumed to lose NO MORE value – and I consider this a joke.
This is bad news for regional banks, but good news for the top 19 banks in the nation. This is exactly what I’ve been saying all along. The Treasury is giving a “pass” to the big banks, but turning a blind eye to their toxic assets.
At the same time, regional and mid-size banks are reporting greater losses on their loans – and this is a real indicator of the poor shape of the economy as people just aren’t able to pay back their loans.
Treasury Secretary Geithner – spoke to Congress today, but couldn’t answer an easy question like “Why is bailing out Citigroup shareholders in the public interest?” He danced around that one. What lack of courage. OR, is there something else going on out of sight of the public?
Here are the last numbers for today:
Dow Jones 30 Industrial – 7970 (up 128 points)
10 Year Treasury Bond – 2.90% (up 0.06%)
Euro – $1.2941
Gold – $883 (down $5)
Oil – $46.51 (up $0.63)
Gasoline – $1.41 (no change)
Yep, it seems the PTB (powers that be) will give a pass to the big banks but thin out the small and regional banks.
Last week I was talking with a friend about one of his business partners who is very successful and wealthy. The business partner inquired of his local bank (here in Texas) about how much more he could borrow to buy RE assets, which are now on sale.
The bank told him they couldn’t give him a loan. Naturally the prospective borrower with excellent financial statements and a long term relationship with the bank questioned that statement.
The bank clarified and said it couldn’t make any loans to any one at all!!! The bank regulators had come into town and reviewed the banks books. The word was given to the bank, thou shalt make NO more loans.
Scary stuff.
Hi David,
You have made a great point to all readers. Go and talk to your bankers, and see how it’s going. Ask them if they can make any loans, and are they under the scrutiny of the banking authorities.
You may want to consider your position with your bank David. If it could be closed down by the FDIC, would it affect you personally. Make sure you don’t have any accounts with more than $250,000 in them at the very least. Also ask yourself what inconvenience you would experience if the bank closed, or was taken over.
Tom