Comments on: Bank Stress Test Dance of the Seven Veils Continues http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html Mon, 23 Nov 2009 00:58:00 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous Jones http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46434 Anonymous Jones Mon, 04 May 2009 00:41:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46434 I don't know why most just don't come out and say it..."the banks cannot survive under the current compensation models." What about this is so confusing? To the extent that the top executives and traders get compensated for immediate results and never share the pain for long term losses, how can these banks be long term earners for their investors? It's impossible, of course. Any palliative attempts by any administration are doomed to failure. The compensation models are purely for bubble conditions and must be completely overhauled if there is to be any equilibrium in our economy. I don’t know why most just don’t come out and say it…”the banks cannot survive under the current compensation models.” What about this is so confusing? To the extent that the top executives and traders get compensated for immediate results and never share the pain for long term losses, how can these banks be long term earners for their investors? It’s impossible, of course. Any palliative attempts by any administration are doomed to failure. The compensation models are purely for bubble conditions and must be completely overhauled if there is to be any equilibrium in our economy.

]]> By: Sacrifice http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46361 Sacrifice Sat, 02 May 2009 21:09:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46361 Recent actions by the administration gives a whole new meaning to the term 'President & CEO'.<br /><br />IMHO Recent actions by the administration gives a whole new meaning to the term 'President & CEO'.

IMHO

]]> By: Harlem Dad http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46335 Harlem Dad Sat, 02 May 2009 17:17:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46335 Yves,<br /><br />Great post, as usual from you. Thanks for not letting go of this story.<br /><br />> So bizarrely, Citi holds a sword of Damocles <br />> over the Treasury, much as AIG does.<br /><br />I'm beginning to wonder, is the U.S. Government as we know it really "too big to fail?" I'm not kidding. This isn't the first time I've worried about this.<br /><br />Personal Antidote: I'm going shopping with my 10-year old daughter today to buy ingredients and supplies with which to make Jelly Doughnut Muffins.<br /><br />Tim in Sugar Hill Yves,

Great post, as usual from you. Thanks for not letting go of this story.

> So bizarrely, Citi holds a sword of Damocles
> over the Treasury, much as AIG does.

I'm beginning to wonder, is the U.S. Government as we know it really "too big to fail?" I'm not kidding. This isn't the first time I've worried about this.

Personal Antidote: I'm going shopping with my 10-year old daughter today to buy ingredients and supplies with which to make Jelly Doughnut Muffins.

Tim in Sugar Hill

]]> By: MrM http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46325 MrM Sat, 02 May 2009 15:42:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46325 <i> The banks submitted results using their own methodologies, and most important for the big capital markets players like Citi and Bank of America, their own risk models. </i>You should not underestimate the cross-sectional nature of these stress tests. While the banks were asked to you use their own models, those that produced loss rates lower than the peers had some explaining to do. As a result, the loss rates are expected to fall neatly within the provided expected loss ranges. It is inconceivable that Citi or BofA would be able to defend their assumptions that loss rates in their mortgage and credit card portfolios would be better than those of their peers. Yet, apparently, this is what is happening. The banks submitted results using their own methodologies, and most important for the big capital markets players like Citi and Bank of America, their own risk models. You should not underestimate the cross-sectional nature of these stress tests. While the banks were asked to you use their own models, those that produced loss rates lower than the peers had some explaining to do. As a result, the loss rates are expected to fall neatly within the provided expected loss ranges. It is inconceivable that Citi or BofA would be able to defend their assumptions that loss rates in their mortgage and credit card portfolios would be better than those of their peers. Yet, apparently, this is what is happening.

]]> By: danps http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46318 danps Sat, 02 May 2009 11:23:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46318 Hi Yves. "Dance of the Seven Veils" is a hilariously apt metaphor. Hi Yves. “Dance of the Seven Veils” is a hilariously apt metaphor.

]]> By: Richard Kline http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46315 Richard Kline Sat, 02 May 2009 07:52:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46315 I'm of the view that one particle of reality has begun to sink in at the Treasury and the White Palace of Pennsylvania Avenue, that it is nearing a political impossibility to get Congress to authorize another $1T-$700B increment so shovel into the maw of raving _and ingrate_ zombie bankers. And with the loss positions at many of these insolvent financials reaching the stage of gangrenous eruption with commercial re exploding in the basement levels of its securities this presents a real problem. The Fed and the FDIC are already being frogmarched into legally grayscale, massive interventions to support asset prices, without which such efforts the complete dissolution of these money center corporates is impossible to obscure no matter how large the TARP. Where to get the money to make the dead balance sheets even fakeably vivid? There just isn't enough dough. <br /><br />By that logic, some of them have to go, or at least have to radically change their configuration of woes. <br /><br />Reality eventually backs one into doing something like the right thing, like it or not. Soooo, when do we see Bo Prez throw a trashcan through the plate glass window of Citi? Of course, it should be JippyMo, or Goldbricks, but hey, these insurrection things are a whole lot harder to stop then to start. That's something _I'm_ banking on, anyway. I’m of the view that one particle of reality has begun to sink in at the Treasury and the White Palace of Pennsylvania Avenue, that it is nearing a political impossibility to get Congress to authorize another $1T-$700B increment so shovel into the maw of raving _and ingrate_ zombie bankers. And with the loss positions at many of these insolvent financials reaching the stage of gangrenous eruption with commercial re exploding in the basement levels of its securities this presents a real problem. The Fed and the FDIC are already being frogmarched into legally grayscale, massive interventions to support asset prices, without which such efforts the complete dissolution of these money center corporates is impossible to obscure no matter how large the TARP. Where to get the money to make the dead balance sheets even fakeably vivid? There just isn’t enough dough.

By that logic, some of them have to go, or at least have to radically change their configuration of woes.

Reality eventually backs one into doing something like the right thing, like it or not. Soooo, when do we see Bo Prez throw a trashcan through the plate glass window of Citi? Of course, it should be JippyMo, or Goldbricks, but hey, these insurrection things are a whole lot harder to stop then to start. That’s something _I’m_ banking on, anyway.

]]> By: mr_a11is http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46309 mr_a11is Sat, 02 May 2009 06:54:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46309 A while back someone proposed the "boiling frogs" theory of bank recapitalization (my apologies to the original theorist for not remembering their name, I'm an over-blogger). The gist of it was that first the shareholders get hit, then the preferreds, then unsecured creditors, etc, etc. That seems to be the path we're taking. Nice and slow, don't let the frogs get too excited, and just keep turning up the heat gradually. <br /><br />My only problem with this theory is that is assumes someone (Hank, Timmy, Volcker?) actually came up with a plan and is successfully executing it. I just can't come to terms with that.<br /><br />And a special thanks to the WSJ for holding this story until after market close on a Friday. A 3 pm release would have been more entertaining. A while back someone proposed the “boiling frogs” theory of bank recapitalization (my apologies to the original theorist for not remembering their name, I’m an over-blogger). The gist of it was that first the shareholders get hit, then the preferreds, then unsecured creditors, etc, etc. That seems to be the path we’re taking. Nice and slow, don’t let the frogs get too excited, and just keep turning up the heat gradually.

My only problem with this theory is that is assumes someone (Hank, Timmy, Volcker?) actually came up with a plan and is successfully executing it. I just can’t come to terms with that.

And a special thanks to the WSJ for holding this story until after market close on a Friday. A 3 pm release would have been more entertaining.

]]> By: don http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46308 don Sat, 02 May 2009 06:51:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46308 For the BO admin. to "restore confidence in the US banking system", it must also restore confidence in C., etc. are healthy. This then would require that they paper over, go easy on, conceal the identities/substance of the S.Test, while providing them whatever support is needed. <br /><br />But in proceeding this way the BO admin. risks losing credibility with the public who so far at least are confidence that BO is looking out for the rest of us, thus the pressure to provide transparency. <br /><br />Providing transparency would require that government intervention, in protecting the taxpayer's interest, requires government say over C. internal management. Doing this then makes other banks nervous, thus shaking banking confidence: Catch 22.<br /><br />So the bottom line, as it always has been, is whether BO will place greater emphasis on restoring the confidence of the banks, or in demonstrating that he's out for the populace. My hunch is that he will continue as he has: in substance looking out after the banks, while doing an excellent job giving the appearance that he is looking out for the rest of us.<br /><br />No doubt that can be met with another nationally televised news conference. For the BO admin. to “restore confidence in the US banking system”, it must also restore confidence in C., etc. are healthy. This then would require that they paper over, go easy on, conceal the identities/substance of the S.Test, while providing them whatever support is needed.

But in proceeding this way the BO admin. risks losing credibility with the public who so far at least are confidence that BO is looking out for the rest of us, thus the pressure to provide transparency.

Providing transparency would require that government intervention, in protecting the taxpayer’s interest, requires government say over C. internal management. Doing this then makes other banks nervous, thus shaking banking confidence: Catch 22.

So the bottom line, as it always has been, is whether BO will place greater emphasis on restoring the confidence of the banks, or in demonstrating that he’s out for the populace. My hunch is that he will continue as he has: in substance looking out after the banks, while doing an excellent job giving the appearance that he is looking out for the rest of us.

No doubt that can be met with another nationally televised news conference.

]]> By: Steve http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46307 Steve Sat, 02 May 2009 06:28:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46307 If the Fed turned off the spigot, Citi, BoA and several others would be dead as a doornail. I predict this will still be true at the end of Obama's term. If the Fed turned off the spigot, Citi, BoA and several others would be dead as a doornail. I predict this will still be true at the end of Obama’s term.

]]> By: attempter http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-seven-veils.html#comment-46306 attempter Sat, 02 May 2009 06:15:00 +0000 http://www.nakedcapitalism.com/2009/05/bank-stress-test-dance-of-the-seven-veils-continues/#comment-46306 I agree that, while the administration's underlying corporatist ideology and strategy remain the same, we're seeing some tactical/execution improvement on a few front: the stress tests are turning out, as Yves says, not quite as farcical as they were looking to be in principle, and the Chrysler bankruptcy is also being handled somewhat better than we might have expected (i.e., the admin did not completely cave in to bondholders and sell out the workers).<br /><br />While I don't think this signifies (yet?) any real change of heart, perhaps it's a grudging acknowledgement of political realities, which in turn may lead to an ideological shift (if the admin belatedly remembers that it was elected to effect "Change", and that in principle it's supposed to be the servant of the people, not of entrenched feudal rent-collectors). I agree that, while the administration’s underlying corporatist ideology and strategy remain the same, we’re seeing some tactical/execution improvement on a few front: the stress tests are turning out, as Yves says, not quite as farcical as they were looking to be in principle, and the Chrysler bankruptcy is also being handled somewhat better than we might have expected (i.e., the admin did not completely cave in to bondholders and sell out the workers).

While I don’t think this signifies (yet?) any real change of heart, perhaps it’s a grudging acknowledgement of political realities, which in turn may lead to an ideological shift (if the admin belatedly remembers that it was elected to effect “Change”, and that in principle it’s supposed to be the servant of the people, not of entrenched feudal rent-collectors).

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