Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Gaza Death Cloud Hangs Over Sheffield Eid Festival 2014 at Millhouses Park - 1st Aug 14
Israels Final Solution of Turning Gaza Concentration Camp into a Grave Yard - 31st July 14
US Failure: Unintended Consequence - 31st July 14
Stock Market Breakdown! - 31st July 14
Echoes Of The Great War – Only An Echo In The Elite Mind - 31st July 14
This is Bad News for U.S. Economy and Stock Markets - 31st July 14
The Important Impact of This “Secret” Gold Agreement - 31st July 14
The Something For Nothing Society Death Spiral - 31st July 14
The Social Memory Dump, Shredding Society - 31st July 14
How Safe Are Unallocated Gold Bullion Accounts? - 31st July 14
USDJPY Big Bear Market - 31st July 14
No More School in Gaza Because All the Children are Dead Chant Israel's Jewish Fundementalists - 31st July 14
The Iron Dome Inside The Heads of Israel’s Leaders - 31st July 14
You Know a Politician or Talking Head is Clueless When….. - 31st July 14
Don't Get Married to Your Gold Stocks—It's a Performance-Based Relationship - 31st July 14
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Bank Stress Tests are Not Stressful Enough

Politics / Credit Crisis 2009 Apr 30, 2009 - 12:06 AM GMT

By: John_Browne

Politics

Best Financial Markets Analysis ArticleLast week, when the U.S. Treasury unveiled the basics of their lender "stress tests", the Fed concluded that "most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized." Simultaneously, they also claimed that the banks needed more capital. Apparently the Fed has little understanding of irony.


Why would our central bankers conclude that "well capitalized" banks need "more capital?" Quite possibly, they believe, as I do, that the rosy economic assumptions that form the basis of the "stress tests" may be far too optimistic. I believe that neither the Fed nor the Treasury have any will to paint a clear picture of our financial turmoil. But that won't stop them from operating under those assumptions.

A brief examination of the stress test assumptions shows why the Fed should be hedging their bets.

First, the level of stress in the tests was set unrealistically low. Their absolute worst case assumption was for a GDP contraction of only 3.3 percent in 2009. This comes as first quarter 2009 GDP shrank at 6.1 percent. And the economy is still slowing. To post a contraction of just 3.3 percent for the year would likely involve an immediate reversal in the rate of contraction and outright expansion by the fourth quarter.

The stress test also assumes a worst case scenario unemployment rate of 8.9 percent in 2009. This is also wildly optimistic when unemployment is already at 8.7 percent and rising at some 20,000 each day. Worse still, if calculated on a pre-Clinton basis, to include all those unable to find anything but part-time employment, the current unemployment rate is a staggering 19.2 percent, or just 0.8 percent from official depression levels! It appears that the U.S. is fast slipping from recession into depression, rendering the stress tests almost meaningless other than as a public morale boosting exercise.

Second, the conclusion that "most" of the banks are well capitalized, as the Fed claims, also strains the bonds of credibility. The nineteen banks tested have total assets of $11.5 trillion. Technically, sixteen of these banks already are insolvent. If any two fail, they will exhaust the current FDIC bank deposit insurance fund. Only three of the banks, accounting for just 6 percent of the group's assets, could survive even the most liberal worst case scenario assumed by the

Treasury. Meanwhile, the five largest and most vulnerable banks, with about $8 trillion in assets, account for some 70 percent of the group's total assets.
Some observers point to the relative security of the smaller regional banks, which did not engage as heavily in leveraged investments. However, the FDIC list of troubled banks has risen in the past three months from 1,568 banks with about $2.3 trillion in assets to 1,816 banks with some $4.4 trillion in assets. The risk has almost doubled, seemingly overnight!

Finally, by suspending the needed discipline of mark-to-market accounting, the profits of many banks have been massaged deceptively upwards. For example, a 'real' loss of more than $2 billion at Citibank was 'fudged' into a published profit of $1.6 billion.

The observers at the Fed and Treasury, as well as the most sophisticated investors around the world, are neither ignorant nor ill-informed. Despite their stress tests, they must be aware of the possibility of massive bank failures and terrifying aftershocks. This belief may have been a factor in a rumor, circulated after the stress tests were announced, that defensive maneuvers to avoid a run on the dollar, including the elimination of hedged short sales against the dollar, would soon be announced. If such a rule were to be put forward it would rightly be seen as a precursor to internationally coordinated foreign exchange controls, that would abruptly bring an end to the benefits of free trade.

Meanwhile, China has used its huge domestic gold production to double its gold reserves. Such clear concern over the viability of paper currency may encourage other central banks and even corporations to follow suit, making physical gold even harder to obtain. Gold therefore, is likely to experience renewed buying pressure as panic buying overcomes the downward 'commodity' selling pressure of depression.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's new book For an updated look at his investment strategy order a copy of his just released book " The Little Book of Bull Moves in Bear Markets ." Click here to order your copy now .

For a look back at how Peter predicted our current problems read the 2007 bestseller " Crash Proof: How to Profit from the Coming Economic Collapse ." Click here to order a copy today .

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014