Day: May 11, 2009

Are You Kidding With The “Stress Tests”?

Thursday, after the markets closed, the government released its “bank stress tests” results.  I have poured over as much info as I could to try and get a grip on just what the hell is going on.

The government’s report states that while ten of the 19 biggest US banks, all of which have received taxpayer funds under the Troubled Asset Relief Program (TARP), require a combined $74.6 billion in additional capital to withstand a deeper recession, all of the banks are at present adequately capitalized and the financial system as a whole is sound.

Federal Reserve Chairman Ben Bernanke said in a statement, “The results released today should provide considerable comfort to investors and the public.” The only basis for such “comfort” is the assurance given by the Obama administration that it will not allow any of the banks to fail and will provide whatever public funds are necessary to keep them afloat.  But with the “good” news the markets still tumbled….so there seems to be some investor that are not convinced that all this test stuff is on the up and up.

The report lays out provisions for the “healthy” banks—such as JPMorgan Chase and Goldman Sachs—to pay back their TARP money so they can escape the minimal restrictions on executive pay and curbs on dividends and stock repurchases attached to the government handouts. This amounts to a blank check to fully resume the speculative practices that precipitated the crash in the first place.

The basic aim of the stress tests was, from the start, to present a picture that understates the critical state of the banks’ finances in order to justify keeping them in private hands while facilitating the continued transfer of government funds to their coffers.

The entire exercise was devised to conceal more than it revealed.

It allowed the banks to provide their own estimates of their losses, based on the scenario presented by federal regulators.

At the insistence of the banks, it based its loss projections not on the banks’ dismal 2008 earnings, as originally planned, but instead on the banks’ earnings reports for the first quarter of 2009. Most of the big banks jigged up their first-quarter reports—already bolstered by government cash, virtually interest-free government loans and government guarantees on their debt—by means of deceptive accounting gimmicks in order to show healthy profits. They did this knowing that their reported results would skew the stress test results in their favor.

The government held intensive closed-door negotiations with the banks over the parameters and results of the tests prior to their public release. Federal Reserve and Treasury officials agreed to put off release of the test results from Monday to Thursday because, they said, some of the banks continued to disagree with the government’s initial conclusions.

What is being obscured is the insolvency of much of the banking system and the fact that the government intends to expend trillions of dollars more in public funds to prop it up. The banks are hoarding billions in bad loans and securities, refusing to sell them at market prices or write them down, and the government is underwriting their actions by placing the Treasury at their disposal.

Other than concealing this reality from the public and propping up the financial markets, the stress tests are aimed at effecting a further consolidation of the banking system, in which the “healthy” banks absorb the rest, placing workers and small businesses more firmly in their vice.

And still all this concern over the credit and when it will loosen up is just so much camoflage.  But yet with all the cash that has been thrown at banks…credit is still tight and almost non existent.  I ask, just what is all this tap dance about?  It appears to me that it is to save the banks and to hell with the middle class.

Banks are still tightening credit standards for small businesses, but not to the degree they did at the end of last year. That’s according to the Fed’s quarterly survey of senior bank loan officers is just out. More than 40% of banks surveyed said they had raised credit standards for commercial and industrial loans to small firms (under $50M in revenue) in the last three months, but that’s down from 69% in the last survey released in January. This is the 10th straight quarter that a net percentage of banks has reported tightening credit to small firms.

Also worth noting: loan demand is still dropping. More than 60% of banks said demand for C&I loans from small firms was down over the last three months. Banks attributed this in particular to decreased investment in equipment, as well as less need for financing inventory, accounts receivable, and acquisitions.

I am still working on just who will benefit from these “stress tests”, other than the banks and Wall Street.

Will Social Programs Take A Budgetary Hit?

Obama has outlined “five pillars” for a new economy that would “make this new century another American century.” In addition to his vague promise of new regulations on finance, Obama listed education (including several right-wing policy initiatives) and “new investments in renewable energy and technology.”

The other two “pillars” foretell massive cuts to social spending: cutting health care costs and “restoring fiscal discipline.”

Obama did not explain how he would cut the cost of health care, referring only to his stimulus packages’ investment “in electronic health records” and “preventive care.” However, the support his reform initiative has thus far enjoyed from insurance corporations, health maintenance organizations (HMOs), and the pharmaceuticals indicates that “cost savings” will come at the expense of patients and the provision of services.

Obama did not tarry long on the first four pillars, but a considerable portion of his speech was dedicated to the fifth, “restoring fiscal discipline.”

Obama boasted that he would “reduce discretionary spending for domestic programs as a share of the economy by more than 10 percent over the next decade.” This will not come from the military budget, which has been handed a record $640 billion for the coming fiscal year.

But what will that entail?

Obama said:   “The biggest cost drivers in our budget are entitlement programs like Medicare, Medicaid, and Social Security, all of which get more and more expensive every year,” Obama continued. “So if we want to get serious about fiscal discipline—and I do—we will also have to get serious about entitlement reform.”

Does this mean that medicare or social security or what?  If there are going to be cuts and the banks are exempt, where will the savings promised come from?  If it comes from where it sounds like it will, then the retired and elderly will be hit the hardest while banks and their CEOs continue to live the “high life”.

What Is The GOP Thinking?

It appears that the GOP is out of touch with the rest of the country and gets more out of touch daily.  They have NO alternatives to offer that would appeal to the American public.  Now they are attacking Obama’s choice for the Supreme Court to replace retiring Justice Souter.  The problem is that there is NO choice as of this writing.

But their best move to date is the choice to replace Specter on the Judicial Committee.  The senator from the great state of Alabama, Jefferson Beauregard Sessions, III will replace Specter on the all important committee in Congress.

The agreement, which is expected to be ratified by Senate Republicans, will give a prominent role to Mr. Sessions, who was blocked by the Judiciary Committee when he was nominated for a spot on the federal bench by President Ronald Reagan  in 1985.

“You have a little more sympathy than normal for the nominee having been a part of that process, and it gives you a commitment to fairness,” Mr. Sessions told reporters.

The nomination of Mr. Sessions, a former United States attorney who is in his third term, never reached the Senate floor after complaints that he had exhibited racial insensitivity — accusations he denied and attributed to distortions of his comments.

One of the many statements he made were pure racism, like when speaking of a white civil rights lawyer, he said, “he is a disgrace to his race”.  He also has called National Council of Churches and the Southern Christian Leadership Conference, as well as the NAACP  as “un-American and communist inspired”.

This man is from the Old South, one of the good old boys, where politicians never look forward but rather remain locked in the past.  In his defense Sessions is not a racist.  How do I know?  He says so and for proof he says that his children attended an intergrated school and he once shared a hotel room with a black attorney.

According to the website On The Issues, Sessions has a dismal record on civil rights:

  • Banning the Pledge of Allegiance is unconstitutional. (Jan 2006)
  • Voted YES on recommending Constitutional ban on flag desecration. (Jun 2006)
  • Voted YES on constitutional ban of same-sex marriage. (Jun 2006)
  • Voted NO on adding sexual orientation to definition of hate crimes. (Jun 2002)
  • Voted YES on loosening restrictions on cell phone wiretapping. (Oct 2001)
  • Voted NO on expanding hate crimes to include sexual orientation. (Jun 2000)
  • Voted NO on setting aside 10% of highway funds for minorities & women. (Mar 1998)
  • Voted YES on ending special funding for minority & women-owned business. (Oct 1997)
  • Supports anti-flag desecration amendment. (Mar 2001)
  • Rated 20% by the ACLU, indicating an anti-civil rights voting record. (Dec 2002)
  • Rated 0% by the HRC, indicating an anti-gay-rights stance. (Dec 2006)
  • Rated 7% by the NAACP, indicating an anti-affirmative-action stance. (Dec 2006)

The choice of Sessions has excited conservatives who see him as a sharp lawyer with well-established legal views after a career as a prosecutor and Alabama attorney general.  The GOP has never been too thrilled with minorities and Sessions just reinforces that view.

At least the Party is consistent, they keep finding leaders that are totally out of touch and still living in the Reagan years.  Sessions just reinforces the idea that the GOP is basically a southern white guy party with nothing to offer but a view from the past.