Monday, April 20. 2009
Posted by Karl Denninger in Banking System at 10:06
(Page 1 of 302, totaling 904 entries) » next page

Treasury: Caught Lying Again

Last night Hal Turner (who has a reputation that is best described as heavily-adorned with Reynolds Wrap) published this (1):

The Turner Radio Network has obtained "stress test" results for the top 19 Banks in the USA.

....

1) Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent.

2) Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans.

3) If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.

4) Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.

He then goes on to list things that we know to be factual, including derivatives exposure (mostly in interest-rate swaps and similar.)

This appears to have led to Treasury issuing the following statement (2) this morning:

The U.S. Treasury Department has not yet received the results of "stress tests'' on the health of the nation's 19 top banks, spokesman Andrew Williams said Monday, after a blog said it had obtained the test results and some U.S. bank shares moved lower.

That's a lie.

How do we know its a lie?

Because of this from April 10th (3) :

April 10 (Bloomberg) -- The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

How can you be ordered not to release something you don't have?

Since that was published on the 10th of April, we therefore know that the results exist and Treasury, the banks involved and The Fed have them, as The Fed was concerned that some banks might try to use them (perhaps in a misleading fashion) during their first quarter conference calls and earnings releases.

Sorry guys, but whether Hal Turner has the real results or not is no longer material. What's material is the claim that Treasury doesn't have them, since they told the banks on the 10th not to release them, and you can't release what you don't have.

The problem with lying is that eventually you forget your previous lies and thus get caught when you contradict yourself.

My response to Treasury's claim is best expressed thus:

STOP LYING TIMMY; THE MARKET IS REACTING VERY, VERY BADLY TO THIS OBVIOUS AND TRANSPARENT LOAD OF CRAP YOU ARE TRYING TO FOIST OFF ON IT THIS MORNING.

April 20 (Bloomberg) -- U.S. stocks tumbled, led by the biggest drop in financial shares in three months, as concern grew that credit losses are worsening and lower commodity prices dragged down energy and material producers.

Bank of America Corp., the lender that lost more than three-quarters of its market value in the past year, plunged 24 percent as rising charge-offs for bad loans overshadowed better- than-estimated earnings. Citigroup Inc. dropped 19 percent after Goldman Sachs Group Inc. said the bank’s credit losses are growing at a “rapid rate.” U.S. Steel Corp. and Exxon Mobil Corp. declined as oil and industrial metal prices decreased.

“The market seems to follow the direction of financial stocks one way or another,” said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “There are definitely more writedowns ahead and more challenges for the loan portfolios, particularly in the consumer side of the equation.”

-snip-

The S&P 500 Financials Index of 80 banks, insurers and investment firms slumped 11 percent, its biggest slide since Jan. 20. The gauge is still up 62 percent from a 17-year low reached March 6.

Regional banks tumbled, with Fifth Third Bancorp, Marshall & Ilsley Corp. and Huntington Bancshares Inc. dropping at least 20 percent.

Stress Tests

Nobel Prize-winning economist Michael Spence said he doesn’t expect every bank to pass stress tests run by the U.S. government to assess their financial health.

Spence said in an interview with Bloomberg Television he would be “very surprised” if all the banks pass the exam, which he says will probably give a better picture of their health than earnings statements. He also said that “the data on lending and credit are still not that encouraging.”

Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first. The White House chief of staff, Rahm Emanuel, said while he had not seen results of stress tests on the 19 biggest banks, he believed the White House won’t have to request more bailout funds.

“The first resort for more capital is going to the private markets,” by issuing new equity or swapping some liabilities into stock that dilutes other shareholders, National Economic Council Director Lawrence Summers said.

More Losses Predicted

Global banks are likely to suffer about $400 billion more in losses on soured assets, requiring further injections of government capital, according to JPMorgan mortgage-bond analysts led by Matthew Jozoff in a report dated April 17.

Updated: New York, Apr 20 19:08
London, Apr 21 00:08
Tokyo, Apr 21 08:08

President Barack Obama is scheduled to get a progress report on the tests today [That was the 10th of April! ] during a meeting with his economic team. Geithner will attend, along with Federal Reserve Chairman Ben S. Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corp.

Goldman Sachs plans to report first-quarter earnings April 14, followed by JPMorgan Chase & Co. on April 16. Citigroup reports April 17, and Morgan Stanley announces April 21. All four banks are based in New York.

Spokesman for the banks declined to comment.

“No matter what the result, the stress tests are going to move markets,” Camden Fine, president of the Independent Community Bankers of America, said in an interview yesterday. “That’s the tricky part. If they don’t give out enough information or the information is presented in the wrong way, that could cause markets to plunge.”

-snip-

Under the Treasury’s plan, banks would have six months after the reviews to raise any new capital they might need. If the money isn’t obtained from private investors, the government will provide the funds from the $700 billion bank-rescue plan.

5) Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.

6) Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital! (HSBC is NOT in the top 19 banks undergoing a stress test, but is mentioned in the report as an aside because of its risk capital exposure to derivatives)

7) Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs,Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!

The debt crisis is much greater than the government has reported. The FDIC`s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.

Put bluntly, the entire US Banking System is in complete and total collapse.