Well, the results of the "Stress Tests" on major American financial institutions are in, and unbridled optimism runs wild in corporate media. Only $75 billion required to guarantee solvency! No more desperate pleas to the Federal Reserve or the Treasury for more money coupled with those annoying "restrictions" on salary or bonus pay! The unemployment rate "stabilizes" at 8.9%! Beyond the hoopla many economists and financial professionals still have some very pointed questions concerning the validity of the tests and the ongoing health of the economy in general. Economist's View's Mark Thoma wonders about the validity of the stress test "mean":
Depending on the "questions" they ask the balance sheets, and how the answers are scored, they can get whatever mean they desire (e.g. how are assets that cannot be valued in the marketplace are "scored' makes a crucial difference in the outcome) ... A big part of the problem with bank balance sheets is the things we cannot see, do not know about, and cannot predict. How were those things accounted for in the stress tests?
Think Progress's Fazid Shakir, citing an item in The Wall Street Journal, reveals the "accounting" procedure; they fudged it:
The Federal reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks, shortly before concluding its' stress tests, following two weeks of intensive bargaining. .... (T)he Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital defecits.
Not content to merely fudge capital defecits, the Fed in its' infinite wisdom also increased taxpayer risk. Wonk Room's Pat Garafolo describes a new "financial instrument" custom-made to transfer preferred stock to common-stock equity:
While the banks will presumably do their best to go out and raise capital from private investors ... they will have the option of converting the shares that the government bought with the initail round of TARP into a new financial instrument ... a "mandatory convertible preferred" share gives the banks the ability to create common equity as needed. The preferred shares convert to common shares when a bank or its regulator decides they should. ... (A)s Robert Reich points out "by this sleight-of-hand the public takes on more risk", moviing from a preferred creditor to a common shareholder.
Given the "Geithner paradigm" (throw trillions of taxpayer dollars at financial institutions judged "too big to fail" while alleviating risk to said institutions whenever possible) both the stress tests and the conversion of preferred stock to common equity constitue more of a public relations makeover than any tangible measure of financial solvency. For a big-picture look at the varieties of insolvency that continue to plague us we turn to an amazing overview pithily entitled Why We Are Absolutely Screwed by Karl Denninger:
1) There are 19 million empty homes in America and the builders are still building.
2)Prices were cranked far too high and still have not come down to historical norms in terms of price-to-income ratios. Until they do, a normal market cannot be restored.
3) Everyone in government has been attempting to prevent (the decline to normal p-t-i ratios) for the last 3 years, and have blown hundreds of billions attempting it. They have and will fail.
4) The boomers will not be needing all those extra homes. They're starting to retire. ... (A) 1 or 2-bedroom condo is just fine when all the kids are gone and you've retired.
5) There are only about 44 million " Gen-Xers" and they're stuffed to the gills with college loans. ... They can't afford the 4 and 5-bedroom houses.
... Steve Liesman gave us the "money" quote this morning (May 7th) on CNBC. None of these banks would survive on 11 or 12% unemployment. ... (T)he actual unemployment rate in the country - it includes those who are "discouraged" (they've given up) along with those who are working part-time because they can't find full-time work.
It is well over 12% right now!
Saturday, May 9, 2009
Tuesday, May 5, 2009
Sen. Schumer's "Compromise" - Killing The "Public Option"?
Echoing last week's "cramdown" mortgage reduction debate, where 11 Democratic senators crossed the partisan divide to vote gainst a bankruptcy reform bill that would have allowed judges to reduce the mortgage payments of homeowners facing foreclosure to 31% of their monthly income, today Sen. Charles Schumer of New York introduced a health care reform "compromise" to protect the "vulnerable" health insurance industry. To preserve private insurers' market share in the coming "reform" environment, Sen. Schumer's proposal would compel any government-run program to comply with all the rules and standards that private insurance companies must follow. Said rules include:
The public plan must be funded by premiums and co-payments ONLY. No tax revenue or government appropriations.
The public plan should pay doctors and hospitals MORE than Medicare pays. Medicare usually pays less than private insurers.
The government cannot coerce doctors and hospitals to participate in a public plan just because they accept Medicare reinbursement.
Officials who manage a public plan will have no stake in regulating the private insurance market.
Seems as if Sen. Schumer is bound and determined to create a public plan that is as unpalatable as the privatized insurance market. Way to go, Chuck!
For some background on what's at stake here let's turn to a recently published report by the Center For American Progress entitled The Erosion of Employer-Sponsored Health Insurance. After detailing how Chrysler retirees could lose their health benefits depending on how the current Chapter 11 proceedings shake out, the report goes on to note how since the start of the recession 2.4 million laid-off Americans have lost their health insurance coverage. In March 2009 alone 320,000 workers lost coverage, numbers that don't include wives and children of the newly unemployed. Call me a bleeding-heart, but I think these numbers tell a far more compelling story than the trials and tribulations of private health insurers. Will the American people be satisfied with inclusive mandated coverage which has proven only to drive up health insurance costs to the point that coverage becomes unsustainable? Do privatized insurers and the AMA give a damn? And why are single-payer advocates being arrested at Senate Finance Committee hearings? After the cramdown fiasco Sen. Dick Durbin remarked how banking interests "run this place". I guess private health insurer shills like Chuck Schumer prove that bankers aren't the only "special interest" that controls Congress.
The public plan must be funded by premiums and co-payments ONLY. No tax revenue or government appropriations.
The public plan should pay doctors and hospitals MORE than Medicare pays. Medicare usually pays less than private insurers.
The government cannot coerce doctors and hospitals to participate in a public plan just because they accept Medicare reinbursement.
Officials who manage a public plan will have no stake in regulating the private insurance market.
Seems as if Sen. Schumer is bound and determined to create a public plan that is as unpalatable as the privatized insurance market. Way to go, Chuck!
For some background on what's at stake here let's turn to a recently published report by the Center For American Progress entitled The Erosion of Employer-Sponsored Health Insurance. After detailing how Chrysler retirees could lose their health benefits depending on how the current Chapter 11 proceedings shake out, the report goes on to note how since the start of the recession 2.4 million laid-off Americans have lost their health insurance coverage. In March 2009 alone 320,000 workers lost coverage, numbers that don't include wives and children of the newly unemployed. Call me a bleeding-heart, but I think these numbers tell a far more compelling story than the trials and tribulations of private health insurers. Will the American people be satisfied with inclusive mandated coverage which has proven only to drive up health insurance costs to the point that coverage becomes unsustainable? Do privatized insurers and the AMA give a damn? And why are single-payer advocates being arrested at Senate Finance Committee hearings? After the cramdown fiasco Sen. Dick Durbin remarked how banking interests "run this place". I guess private health insurer shills like Chuck Schumer prove that bankers aren't the only "special interest" that controls Congress.
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