Democratic Underground Latest Greatest Lobby Journals Search Options Help Login
Google

Now It's Official: Stress Test Results Pre-Determined

Printer-friendly format Printer-friendly format
Printer-friendly format Email this thread to a friend
Printer-friendly format Bookmark this thread
This topic is archived.
Home » Discuss » Topic Forums » Economy Donate to DU
 
girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Feb-22-09 10:45 PM
Original message
Now It's Official: Stress Test Results Pre-Determined
Now It's Official: Stress Test Results Pre-Determined
http://www.nakedcapitalism.com/2009/02/now-its-official-stress-test-results.html

We have been skeptical that the pending Treasury stress tests on banks, designed to ascertain their state of health, were inadequately staffed and therefore could not do the job properly. Our big concerns were that they had too few bodies to e test financial data versus underlying documentation adequately (usually done on a sampling basis) and they lacked the expertise (and perhaps the mandate) to vet risk models (which we all know have performed impeccably over the last two years.

Is it a test if the results are pre-determined? Apparently Team Obama thinks so.

From CNBC (hat tip reader Early Writedowns):

Said one high-level official, I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show theres a program in place to give banks access to that capital if they need it.



Now consider this observation from a reader in comments:

I have a personal anecdote about Citi and the difficulty of spotting how bad their loans actually are. I'm involved with a $300 million condo-hotel development in the Caribbean. Citi has the whole loan (i.e., they didn't securities or otherwise sell participations in the loan). Even now, we expect the hotel needs at least another $100 million to finish construction and open (we are no longer under any delusions that more than a handful of buyers will close on the condo portion of the condo-hotel). So, in other words, Citi is $275M into this project, and it's not certain that the completed hotel will even be worth the extra $100M required to complete and open. Hence, one might plausibly value this $275M loan at zero (i.e., a complete write off). I cannot imagine any stress test would uncover what a huge loss is on the way in the next 12 months. In fact, this loan has not even been pawned off to the nonperforming/distressed debt/workout section of Citi because the interest reserves make it "seem" like the loan is still performing, not to mention that completely out of date pro formas make it "seem" like (i) equity will come in to finish the project and (ii) condo sales will pay down a huge part of the principal once construction is complete. This scenario must be present in a large number of Citi loans, especially in their somewhat active foreign development divisions. Citi must be so far from solvent that it's not even funny. Only hyperinflation in the dollar could ever make it possible for the borrowers to pay back some of these loans. I'd bet that the sooner we face reality on some of these loans and just halt future fundings, the less money the taxpayers are going to lose. As it is, it's almost too late. Too bad for the US taxpayer.



This is merely one story, but there has been a fair bit of coverage in the business press as to how a lot of real estate development, particularly high end resort, is being mothballed or simply cancelled. So there are no doubt other deals like that at Citi and other US banks.

http://www.nakedcapitalism.com/2009/02/now-its-official-stress-test-results.html">more...
Printer Friendly | Permalink |  | Top
DJ13 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Feb-22-09 10:54 PM
Response to Original message
1. Obama's economic team is only worried about keeping the bank execs employed
Geithner and Summers have dealt with this crisis more like fiscally conservative Republicans than progressive Democrats.

Printer Friendly | Permalink |  | Top
 
elocs Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Feb-22-09 10:58 PM
Response to Original message
2. I had heard that when FDR closed the banks and were supposed to determine
which ones were sound that they simply asked the banks and took their word for it, making it appear like there had been an actual government study.
Printer Friendly | Permalink |  | Top
 
snot Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Feb-23-09 03:12 AM
Response to Original message
3. Pls K&R this!
Printer Friendly | Permalink |  | Top
 
formercia Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Feb-23-09 06:24 AM
Response to Original message
4. The rusting hulks of unfinished high-rise condos.
I would invest in demolition companies. Until the blight on the landscape is removed, it will continue to depress real-estate.
Printer Friendly | Permalink |  | Top
 
wuvuj Donating Member (874 posts) Send PM | Profile | Ignore Mon Feb-23-09 07:26 AM
Response to Reply #4
5. You know it's pretty bad when....

"Investors in Britain also breathed a sigh of relief on reports that Royal Bank of Scotland PLC, which is already majority owned by the British government, was planning a major restructuring that would see 20,000 jobs cut.

News reports over the weekend said the bank was planning to isolate its bad assets so that the market can establish a value for its viable operations. The reports suggested that up to 20,000 employees, or about 10 percent of the work force, could be shed in the process."


http://finance.yahoo.com/news/World-markets-buoyed-by-apf-14436406.html
Printer Friendly | Permalink |  | Top
 
formercia Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Feb-23-09 08:50 AM
Response to Reply #5
6. For every investor that gives a sigh of relief
there's a hundred redundant employees that give a sigh of despair.
Printer Friendly | Permalink |  | Top
 
DU AdBot (1000+ posts) Click to send private message to this author Click to view 
this author's profile Click to add 
this author to your buddy list Click to add 
this author to your Ignore list Fri May 29th 2020, 01:13 PM
Response to Original message
Advertisements [?]
 Top

Home » Discuss » Topic Forums » Economy Donate to DU

Powered by DCForum+ Version 1.1 Copyright 1997-2002 DCScripts.com
Software has been extensively modified by the DU administrators


Important Notices: By participating on this discussion board, visitors agree to abide by the rules outlined on our Rules page. Messages posted on the Democratic Underground Discussion Forums are the opinions of the individuals who post them, and do not necessarily represent the opinions of Democratic Underground, LLC.

Home  |  Discussion Forums  |  Journals |  Store  |  Donate

About DU  |  Contact Us  |  Privacy Policy

Got a message for Democratic Underground? Click here to send us a message.

© 2001 - 2011 Democratic Underground, LLC