The worse is over because the irresponsible media has finally realized it’s not gonna bring down any of the big banks.. Earlier this year, media (including CNN) was making completely unsupported suggestions that some banks could be nationalized, even though this was never seriously considered.. The recent “surge” in the big banks is just due to the people realizing that talk of nationalization was completely premature.. The big banks are still down quite a bit… BofA -72.18% for the past year, Citi -87.15% for the past year.. As long as these banks are not going to be nationalized (and they are not), the stocks are still cheap, regardless of the results of the stress tests.
Oh my. The Fed has produced a model to test the banks in our current financial/economic crisis. How much confidence should we place in their model?
And today Bernanke told Congress that the economy would begin to recover later this year (according to their models).
The Fed must have some of the most robust economic models on the planet (solar system?) and yet they could not see the financial crisis coming. When it came, their models predicted the crisis would be “contained” to sub-prime loans. When it was not contained, their models predicted it would not result in a serious recession. When it began to get serious, their models predicted it would not last long. The Great Recession is not over yet and their models now predict a turn around later this year.
Their models are robustly wrong. Has anyone heard Bernanke say a word about how they have developed models that work?? I have not. I’m seriously afraid the Fed is up the creek without a model.
Paul, lets be real here. This administration used outdated economic data and future “worst case scenario” data when performing the stress tests to begin with which means that they are all useless. Knowing this they STILL had 14 of the 19 needing more capital which should tell you where they stand. They all need more money, or will soon. Second they put the pressure on FASB to change the accounting rules so that the banks could make their smelly assets look better than they are with the FM method of accounting. Suddenly they all reported profits this quarter…….amazing! These guys are desperate to get John Q public to think that things are starting to turn around when in fact the Pigs just got a lot more lipstick plastered on them. We are now starting to see the credit card business and commercial real estate business start to hit the books with exponential default rates. Get ready to pony up a lot more money people. The Bank of America will soon be that after the government completely confiscates some of the major players.
To Ken from Missouri – I have a bridge in Brooklyn to sell you; is your piece of real estate some swamp land in Florida?
The real question is,”was it ever really that bad to begin with?” Henry Paulson panicked the world a year ago with his assertion that the world would end without massive government intervention. The government intervened, but we have yet to see any real evidence that the money was used as intended, or that it made a difference for the survival of banks.
In the meantime the stock market panicked and dropped precipitously. That was not really such a bad thing since stocks were massively overpriced and were bound to drop sometime soon. But the market acted as the market does and overreacted.
No the worst is not over, but the best run banks will survive, hopefully others will be allowed to fail.
Hopefully we will learn from this debaucle and initiate (or reinitiate) true reforms to our financial system. Let’s regulate insurance like investments (namely credit default swaps and their ilk)as insurance, lets bring back the Glass-Steagall Act and reinistitute inter-state banking restrictions. And finally, lets figure out a way for the owners of the corporations (the shareholders) to play a major role in the governance (not management) of the companies they own instead of leaving it to the employees (CEOs) and their cronies.
Sure it is! And if you believe that lying hype, I’ve got a nice piece of real estate I’d like to sell you!
Is the worst over? Of course, because the Fed and the Treasury will bail out the banks that are too big to fail (those who contribute to the right politaicians).
If everyone gets an “A” that usually means that the grading scheme is politically correct but meaningless. That is what is called grade inflation. But then, we wouldn’t want to hurt the bankers’ tender self esteem.
The govenment wants to take a majority ownership stake in GM. What is government ownership of the means of production called?
A while back Feds loosened up on how banks can value their toxic assets and now, not quite surprisingly, they are going to giev A+ to all major banks. The truth is banks have long time left to suffer and there is little that government can do about it/
No. There is still a bit more falling to come.
Mortgages have to be renegotiated downward to reflect the true value of the properties against which they were lent, not the vastly inflated prices over the last 10 years (prices, not values). Otherwise, the borrowers will walk as soon as they realize that they’ve been cheated. The banks that hold the most mortgages written from 1998 through 2007 will be hit very hard, and they deserve it, as they willingly took on those risks. The rest will be just fine.
Kapitalism is dying; if we want to save it, we must let the failing banks fail so that the healthy ones can grow to replace them. The same is true for airlines, autos, homebuilders, etc. On the other hand, if we want to switch to socialism, let’s be like Italy or France (wine at lunch and national health care), rather than Russia or China (bad food at all times of day and early mortality).
The only thing that the stress tests prove is that the government will continue to find ways of wasting taxpayer’s dollars. Without really knowing how to value certain assets on the banks balance sheet nor having any truly accurate way to predict loan defaults moving forward, there is no way to say “Bank A needs more capital, Bank B does not” which is what this silly exercise is trying to do.
The fact remains that unemployment is high and individuals aren’t spending money, revenue is down so businesses aren’t spending money, and banks aren’t making loans as fast because they’re not receiving as much money and the overall velocity of money is down.
This does not bode well going forward.
Of course the worst is over. Now that the Government is so heavily invested in them, the banks can do whatever they want and they know the government will not let them fail.
Goldman Sachs admitted as much when they reported their earnings were due in large part because of very speculative positions taken during the 1st quarter.
I think there is another aspect to banking, which is that banks are coming down off of a long period in which they were fat, dumb and happy, because the money press was running 24/7. Those days are over, and I believe we’re entering a long period of tough competition and consolidation for banks, as well as necessary regulation. As with with many other industries – notably real estate – the low-hanging fruit has been picked, and we are entering a period where you are going to have to provide service to earn money. I believe the long, misguided period where shareholders came before customers is over, and good riddance. Ask Detriot how that point of view has worked for them.
Not a chance Paul.
This is no different than the banks saying they made a profit last Qtr. You can make the numbers dance if you’re talented enough but the fact of the matter is that the underlying causes have yet to be fixed, or even addressed properly.
Until housing and the assets attached to the mortgages are addressed properly the banks will be in trouble.
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Credit too good! I was turned down by a major bank (which I have been with for 30 years) for a credit card because my credit was too good (I paid my bills on time). They said that they only make money on “Over drafts, Interest paid on current debt and late fees”. Go figure.