The current system in place to get billions of dollars in the hands of the students who need to pay(what has become insane amounts) to colleges for educations are about a have a major make-over. The Obama administration has put in place motions allowing the government to change from a place were private banks came to borrow cheaply, to one where students can now accesses funds directly.

Students today all know how to use the internet, if they do not, then going to college should not be the problem, but rather getting computers in the hands of young people should be the major issues. That said, filling out online applications, and conducting all transaction on the web, should allow the government to loss its dependence on major banks to services the loans. Further, it allows the government to get new bids, reducing the cost to the Fed and frees up more money to make grants.

This is all well and good, but the underline problem is that college cost $40K Plus. Anyway you slice it, that’s $160k to payback.  With most single family homes costing about the same, will choosing between going to school for 4 years, or having a home to live in for the rest of your life bet the problem facing American Families. If the market goes back up the college education will be worth something, but with that thinking so will the house.

Read Article: Big Changes on the Way in Lending to Students

CNBC had an excellent program called “House of Cards” that has aired a few nights ago, and will continue to be aired on televeision a few more times (check out the schedule).  You can watch the entire program, thanks to Hulu.com.  

Let’s hope we are all wealth and retired by the time this house of cards falters.

Internal Email
Wall Street, 12/15/2006

You never know, it might be a good thing. This way they can transfer ownership to Social Security administration and we can get what Bush wanted all along, our safety net in the hands of Wall Street. Because they’re so good a managing money!

If a business is not working correctly, the system already has a process in place. It’s called bankruptcies. All the system to work, It will be better in the long run. Backroom deals don’t help; they only get us in bigger trouble called volatility.

US Government announced Friday a deal which will convert its prefer shares holding in Citibank, into common Shares worth about 36% of the over all company.

Breakdown: The Citigrop Deal

US Government already gave Citigroup $45 billion,

Receiving preferred shares and warrants in the company

Government is taking on a greater risk by assuming more volatile common shares

Market price below the $3.25 per-share conversion price

Taxpayers will also lose roughly $2 billion in dividends

Move will reduce existing shareholders stake holdings to as little as 26%.

Breakdown: Changes at the Top

Majority of Citigroup’s independent directors will be replaced.

CEO Vikram Pandit and Chairman Richard Parsons will retain their positions

Breakdown: FDIC

FDIC. considers a bank undercapitalized if the tangible equity-to-asset ratio is 2% or less

Citi’s ratio hovers around 1.5% now.

Read Article: U.S. to control up to 36% of Citi

More bailout money might be needed for the US automakers, and although “I Love me some chevy’s”, I don’t get the point any more. It would be cheaper for all Americans to just buy the cars directly for full MSRP prices then to continue to throw money at these companies. At some point, and I am sure we have already reached it, the interest on the bailouts is worth more, then if every American got a car at full price.

But I am not knocking American cars. Just look at the great buicks they sell in China, http://www.worldcarfans.com/category/buick, maybe if they solid these nice cars in American, some people might buy GMs.

Breakdown: GM Losses

·          $9.6 billion fourth-quarter loss

·          Rapidly depleting cash reserves

Breakdown: 2008

·          Revenue of $149 billion

·          17% lower than the previous year’s revenue of $180 billion

·          Global sales fell 11% in 2008

·          Full year loss of $30.9 billion, or $53.32 a share

·          Fourth quarter loss $9.6 billion, or $15.71 a share

·          Global sales fell 26%

Breakdown: Cash Reserves

·          Down $14 billion at the end of 2008

·          Including $4 billion it had borrowed

·          Spent $19.2 billion of cash reserves in 2008

·          Spent $2 billion a month in the fourth quarter (Totaling: $6.2 billion)

Forecasting cash flow burn of $14 billion in ’09

GM needs $11 to $14 billion in reserves to finance operations

Breakdown: GMAC Financial Services

Fourth-Quarter profit of $7.5 billion

Would have lost $4 billion without a bond exchange in December

“In 2007, the company lost $43.3 billion, a record, mostly the result of a non-cash accounting charge; it adjusted the figure higher by $4.6 billion on Thursday.”

Read Article: G.M. Loses $9.6 Billion; Wagoner in Washington

Increasing unemployment, together with on going pressure for large organization to find cost cutting measures have caused six consecutive months of decline in for long-lasting manufactured goods. Reaching Six year lows.

Durable good orders are closely watch as they are indicators for both the health of corporations and sentiment of consumer’s willingness to take on large purchase. The numbers show that the economic downturn is project to go will into the second part of 2009

The decline in durable goods orders and its major components was much more than expected.

Breakdown: Commerce Department Report

·          Durable Goods orders dropped 5.2% to $163.8 billion in January,

·          Lowest level since December 2002.

·          Orders for prior month revised down to 4.6%

·          New orders dropped 2.5% (excluding transportation)

·          Motor vehicles and parts fell 6.4%

·          Non-defense capital goods orders fell 5.4% in January (excluding aircraft)

·          Previous month revised to 5.8% plunge

Analysts expected overall new orders to fall 2.5% in January

Read Article: U.S. durable goods orders fall to 6-year low in January

I am against the Banking/Mortgage bailout, so the first part of the evening to me was a waste of time.

Getting to the good stuff:

The second part, regarding energy, and building better infrastructure is where I agree.  I would have thrown the whole $700 billion directly into projects that create better infrastructure, which means better roads, better energy grids, better schools and better hospitals. As well as public home ownership programs which get people into affordable housing.

Education:

We must do something about education.

I don’t think there is a person in this world that would disagree with that statement. American needs to be the leader in Collage level educations.

The top school in American cost nearly $50 thousand a year to attend.

Second tier schools are not far behind.

That means:

Super rich get in; because they have the money

Super poor get in; because they get financial aid

A few kids that know how to play a sport, and a few really deserving geniuses. Everyone else gets the shaft.

The middle class, I see most people will have to go bankrupt to send their kids to school. Or we can bankrupt them via Student Loans that are so large they rival most mortgages

Fundamental Problem’s:

Houses are too expensive

Cars Cost too much

Schools are beyond most of us  

Gas and Food are not affordable

People are too greedy

If the only option is to fix the banking system so it lends again, how long before they start lending to everyone, and we are back to the same situation that we are in now. Giving people credit cards, home mortgages and car loans for things they could not afford before will be no different then giving it to people now.  

We have to stop valuing our assets based on leverage; we need to understand the real price. We need to teach our children that if they want a new Flat Screen TV, or a new car, they need to get a job and save for it.

The only way to get to real prices is to allow the market to set those prices.

It is not realized by injecting huge amounts of money, hoping to fix it and continuing to push the bill forward.  

Increasing Money Supply:

The other way to fix the problem is to create inflation in parts of the economy that work, and keep prices the same in other parts. Increase minum wage to $10/h and put restrictions on home/card/food prices, until the average persons wage comes close enough to afford things.

The current administration’s method is to increase the money supply, hoping that it will trickle down to the worker, and increase salaries. By creating and saving jobs, there will be less people to perform tasks. As there are less people, the remaining people will have the opportunity to ask for more money. And so on. The more money they make, the easier it is to pay off mortgage, credit cards and cars.

The problem of course is inflation. As companies are forced to pay more for employees they will have to increase the cost of their goods. But because the workforce has more money in their pockets, they can afford the more expensive goods. Buy up as much as they can until, of course, to buy more they need to borrow, and the cycle returns.

A 50k education might not seem high if the average worker at McDonald’s s is making 55k a year.

Universal Health Care:

Everyone should have health care. It should be a right, not a privilege.

There will always be private doctors, If you have money, you can pay more to get better service. Growing up in a communist country, my family went to private doctors. We had people living in American who sent money home. With that money, we had the better things in life. But for things like blood test, and x-rays and simple surgeries we went to the national health care system.

If you make health care universal and pay for it outside of payroll taxes, you will not have the problems that the big employers face today. More jobs will stay in the United States, and more entrepreneurship will occur, because people will feel that their families are safe.

Social Security:

Social Security was never designed to be a retirement system. It was created as a safety system in case of troubled economic times, such as we have today. For people to retire, American companies had pension plans, and stock ownership programs amongst other tools. In the 90’s we switched to 401k.

We still need a social safety net. If we do not, the next time a crisis occurs, it will be far worse. Depression might once again fall on the backs of Americans.

Savings Culture:

What we do need is a way to create a savings culture.

Supplemental savings accounts for everyone is a great start.

People should be allowed to keep stocks, bonds or cash, in tax free savings accountswith out having to pay the fee’s that mutual funds or 401ks charge, when they can trade their own stocks on e-trade for $5 a trade. We should have enough trust in people to do that. The money they put in should be in escrow account, and they can not withdraw anything until they retire. If they do, they should have to pay 50% on all of the money in the account. A person should be allowed to put up to 10% of their total income into this account with not max. All other programs such as IRA’s and 401k should remain intact.

It would create a savings culture. 15% in 401k, 10% retirement savings account. And so on

Home Ownership Savings Account:

Government should create a “10% of income” home ownership account.

This would be an account where people are allowed to put up to 10% of yearly income, which can later be used to purchase a “first home”.

It would give young people a chance to save some money and build real wealth for the future families of America. A person should be allowed to keep stocks, bonds and cash in these accounts tax free, until you buy a house. If you never buy a house it can convert into a retirement account.

There are many problems, and no fixes will work as well as we hope. But just throwing money at problems is not a solution. We need the best and brightest to really fix our problems. Lets hope they are up for the challenge.

In trying to rap our heads around the latest government program to try and rescue the banking sector, we have become puzzled at the constantly change approach the government has.

It seems the government has always known that it will need to take direct ownership in the banking sector. However, because the word nationalization has such a bad condemnation in the American Vocabulary, it seems that the government has to continuously come up with new programs, making it clear to Americans that with out a nationalization approach we have no choice but depression.

In the latest program know as Capital Assistance Program, it seems that the government wants to allow banks, and possibility Auto Manufactures to convert the loans they received, as Preferred Shares into common stocks.

Two major problems we see are, if the bank goes into bankruptcy, as a common stock holder the government basically has not protections. At least as the Prefer share holder, they could have the project of becoming a receiver. Second, as a common share holder, the Fed nolonger get the large dividend payment for giving the bank the cash infusion. The Government is basic subject to the board of director’s discretion to pay, when and how much they choose.

That means for the government to A. Not loss there invest, and B. To get dividend payments, they need to take a control role in the company with seats on its board, and in other areas of its management.

Breakdown: Converting to Common Shares

·          Latest financial rescue plan will allow 19 large troubled financial institutions to exchange preferred shares with common shares if it turns out projected losses materialize.

·          Look into balance sheets and capital needs over the next two years, Evaluate how much capital the company will need over that period

·          Banks could receive preferred shares that aren’t converted to common shares until losses that were forecast by the stress test actually occur

·          19 largest financial institutions, with $100 million in assets or more, are eligible for the program.

·          Preferred shares aren’t converted to common shares until losses that were forecast by the stress test actually occur

·          Financial institutions will have an opportunity to buy out the government preferred convertible stake prior to the required conversion date

Breakdown: Program

·          Known as the Capital Assistance Program

·          Builds on an existing program, known as the Capital Purchase Program

·          Already allocated roughly $200 billion in bank bailout funds towards capital injections

·          400 national, regional and small community banks currently in the program

“Based on the CPP program, banks have been required to find private capital before they can buy out the government stake. However, a provision in a massive stimulus bill past earlier this month eliminates that requirement. Banks can use whatever capital they have available to buy out the government stake.”

The question is why not just let the banks fail. Use the money, now in the trillions, to start new banks, and new industries. Allow for all those who have stolen to fail, and for the new talent to take control of the businesses that Americans need.

The only way to truly stabilize is to allow the market to find its real bottom. Not try to create one using Bailout’s and Stimulus packages. If your home is worth only 50% of what it was 2 years ago, then it should be allow to fall to that value, otherwise all you do is artificially meant a price that is not sustainable, unless of course be print so much money inflation reaches the new equilibrium price compared to property value, and everyone things that $1 Million is not much to pay for a single family home in the United States.

Read Article: Bernanke: 19 banks eligible for common infusion

There is an old feeble that we read to children in the hopes of teaching them a lesson about life; A little boy scrams out that he saw a wolf, just to get everyone’s attention. After doing it a few times, and having all the towns people come to his rescue the town’s people catch on. So when the boy really does see the wolf, the town’s people don’t come to his rescue and the boy gets eaten.

American International Group, rescued twice last year by the U.S. government, is asking for more aid and bracing for a fourth-quarter loss of roughly $60 billion.”

Breakdown: AIG Losses

·          $60 billion Loss would exceed Time Warner’s $54 billion single-quarter loss in 2002

·          Dwarf $24.5 billion loss posted in the third-quarter

·          After which, Fed increased rescue package for the insurer to $150 billion

AIG’s loss due to: Writedowns on commercial real estate and other assets

Breakdown: Next Steps

·          Latest round of talks include the possibility of additional funds

·          Trading debt for equity

·          May look to convert preferred shares into common stock

“In case they do not reach a deal, AIG’s lawyers at Weil, Gotshal & Manges LLP were preparing for the possibility of bankruptcy”

Read Article: AIG in talks with U.S. government, sees $60 billion loss: source

Breakdown: Possible Citibank Nationalization

·          US government to own as much as 40% of Citigroup

·          Rescue No. 3

·          Will not involve additional taxpayer money  

Already relies on the government to

            Finance its operations

            Insures hundreds of billions of risky assets

Breakdown: What Citi has given up?

US government has ordered Citigroup

·          Sell businesses

·          Shake up its board

·          Cut its dividend

·          Reduce risky trading

·          Moved to curb bonuses and perks like corporate jets

·          Bowed to Democratic lawmakers on bankruptcy legislation

·          Now required to fill out a public report card on its lending activities monthly

“The Obama administration says it has no plan to nationalize banks outright, and government officials say they want to avoid taking a big stake in Citigroup. The hope is that more equity capital from the government, supplied through the conversion of preferred stock, will help Citigroup pass a new “stress test” that federal regulators are preparing to administer to 20 or so large banks. The administration’s strategy seems to point in the direction of stopping short of outright nationalization — where the government takes control — and stepping up regulatory scrutiny.

Analysts say the worst-case situation is that the government eventually steps in, breaks up Citigroup and sells off the pieces. Citigroup, they said, could end up half of its current size.

Breakdown: Disadvantages of Full Government Control

Could place rivals at a disadvantage

Customers prefer parking money at bank backed by credit of the United States

Rather than a smaller bank which use the FDIC $250,000 limit

Traders might prefer to trade with a bank backed by the federal government

Read Article: 3rd Rescue Would Give U.S. 40% of Citigroup

As the economic crisis of 2008/09 plays out, we are forced to take a closer look at the Japanese economy Much of the US Government proposed bailout, stimulus, restructuring plans are based on the Japanese model of the 1990’s which did little for the Japanese other then keep them in a prolonged recession for nearly 2 decades.  Many economists have predicted that lower interest rates to zero, and take large stakes in banks will create a similar situation in the United State.

“SFCG Co., a major provider of high-interest loans to small businesses, filed for bankruptcy protection Monday — the latest Japanese company to fold under the growing weight of recession and financial distress.”

Breakdown: SFCG Co

·          Established in 1978

·          Based in Tokyo

·          Primarily lends to Small Business.

·          Posted 15.9 billion yen net loss in the August-October quarter

·          Down from a 3.6 billion profit the previous year

·          Listed 338 billion yen ($3.6 billion) in liabilities

·          Borrowed from several foreign banks, Citigroup Inc, Lehman Brothers Inc.

“It said it could no longer stay afloat amid mounting bad loans, tighter credit conditions and new regulations limiting interest rates in the consumer lending industry.”

Because of on going difficulties with credit markets in Japan, it is excepted that more corporate bankruptcies may follow. Last years bankruptcies where mostly amongst real estate and construction sectors. SFCG’s brings to light other sectors which might fail due to ongoing crisis.

Breakdown: Japanese Bankruptcies

·          SFCG is the biggest Japanese company to fail this year

·          10th listed company to file for bankruptcy since Jan. 1

·          34 listed firms failed Last year

·          Most since the end of World War II

Read Article: Japanese lender folds as financial distress mounts

Part 1:

Part 2:

It seems that even oil rich Venezuela’s is having a issues when it comes to knowning with whom they have invested their money. As the details around Texas financier R. Allen Stanford become available many countries in Latin and South American are trying to gage their exposure to the fail out, as Stanford International Bank of Antigua has been a major player in many of there markets.

“Venezuela’s government is seizing a Stanford Bank after panicked investors withdrew at least $26.5 million on news of fraud charges against him, the finance minister said Thursday.”

Breakdown: Stanford Bank SA

·          Run on the local equivalent of $26.5 million,

·          12% of the bank’s Venezuelan deposits

·          Stanford Bank has 14 branches

·          15,000 clients

·          Total deposits of 473 million bolivars, or $220 million

·          Immediately up for sale

·          Venezuela’s government to back deposits

·          Government assuming total ownership of Stanford Bank SA

·          Expected to receive the proceeds of the sale

·          Branches across the country temporarily shut

·          Unclear how long the offices would remain closed

Breakdown: Locations

Antigua-based Stanford Bank International

Affiliates

Mexico, Panama, Colombia, Ecuador, Peru and Venezuela

Breakdown: Wealthy Venezuelans

Holds $2.5 billion in assets at Stanford International Bank in Antigua,

Their investments are outside the purview of Venezuelan law

Will not be protected by Caracas

Read Article: Venezuela government seizes local Stanford Bank

Most people believed that the $ 787 Billion Stimulus Package would include some type of relief for people facing foreclosure. However the Package which passed the House and the Senate distinctly was missing any earmarked amount for such efforts.

We now learn that the Obama administration has plans for an additional $ 75 billion dollar bill which would help with what many have called the underline problem. All the bad loans, or foreclosures which started appearing last summer, and have since basically brought down the might American economy.

“Seeking to stabilize the foundering housing market, President Obama is offering a plan to help as many as nine million families refinance their mortgages or avoid foreclosure.”

Breakdown: $75 Billion Plan – Homeowner Affordability and Stability Plan

·          More ambitious than expected

·          Helps keep 4 million families in their homes

·          Helps 5 Million homeowners refinance mortgages guaranteed by the government-controlled housing giants Freddie Mac and Fannie Mae

·          Allows people to refinance at lower mortgage rates, reducing monthly payments

Breakdown: Housing Market Free-Fall

·          New-home construction at lowest level on record in January

·          Privately owned housing starts fell 16.8% from December

·          Annual rate of 466,000 – Lowest pace since 1959

·          Existing home median price in the United States was $175,400 in December

“It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy,” the president said in the remarks. “And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

Breakdown: How it’s done

·          Plan seeks to have lenders lower rates

·          Government to offer homeowners principal reductions of $1,000 a year for five years

      Homeowner must stayed current on payments

·          Government to give $500 to loan servicer’s

      Servicer must modified loans before borrowers fell behind in their payments

·          If a lender lowered interest rates 38% of monthly income on mortgage payments Government provides matching funds to lower that payment to 31% of income

·          Reduction could equal $400 in monthly savings on a $220,000 mortgage

 “Included in the package is a move to ease some restrictions on Fannie Mae and Freddie Mac — which guarantee millions of home loans. Generally Fannie and Freddie cannot guarantee refinancing on mortgages valued at more than 80 percent of the home’s worth.”

The president’s plan would remove that restriction on mortgages the lending giants already own or guarantee.

Read Article: Obama Plans $75 Billion Outlay to Fight Foreclosures

Last week we wrote about the possible failure of Trump Entertainment Resorts in Companies Who Could Fail in 2009.  Confirmation reported by Wall Street Journal today that Donald Trumps casino is expected to file Chapter 11 of the Bankruptcy Code on Tuesday morning.

The move could affect 9500 employees.  This is expected after the stock has slumped 94% in recent years.

Thanks to the AP news service, we now have a clearer picture of how the government would like to spend taxpayer dollars to stimulate the economy.

It’s a large number covering man areas. Many economists however believe because of the delay of getting such a plan enacted, and the continued decline of the economy, the number might not be enough. The Stock market echoed the sentiment by dropping over 350 points the day the plan passed the senate.

Others have criticized the plan as a social reform project more then a economic stimulus package. Time will be the test, but thankfully it will not be years, but rather months and week until we are suppose to feel the impact of the package. The other larger dependence will how the treasury distributes the remainder of the TARP funds, and how quickly new loans become available.

 
“The debt costs would add about $330 billion” to the bill over 10 years. And many of the provisions will expire in two years.

POOR AND UNEMPLOYED
$40 billion to provide extended unemployment benefits through Dec. 31
            Increase benefits $25 a week
$20 billion to increase food stamp benefits by 14%
$4 billion for job training
$3 billion in temporary welfare payments.

DIRECT CASH PAYMENTS
$14.2 billion to give one-time $250 payments to Social Security recipients

INFRASTRUCTURE
$46 billion for transportation projects, including
            $27.5 billion for highway and bridge construction and repair
$8.4 billion for mass transit;
$8 billion for construction of high-speed railways
$1.3 billion for Amtrak
$4.6 billion for the Army Corps of Engineers
$4 billion for public housing improvements
$6 billion for clean and drinking water projects
$7.2 billion to bring broadband Internet service to underserved areas
$4.2 billion to repair and modernize Defense Department facilities

HEALTH CARE
$24.7 billion to provide a 65% subsidy of health care insurance premiums for the unemployed under the COBRA program
$86.6 billion to help states with Medicaid
$19 billion to modernize health information technology systems
$10 billion for health research and construction of National Institutes of Health facilities
$1 billion for prevention and wellness programs

STATE BLOCK GRANTS
$8.8 billion in aid to states to defray budget cuts

ENERGY
About $50 billion for energy programs, focused chiefly on efficiency and renewable energy, $5 billion to weatherize modest-income homes; $6.4 billion to clean up nuclear weapons production sites
$11 billion toward a so-called “smart electricity grid” to reduce waste
$6 billion to subsidize loans for renewable energy projects
$6.3 billion in state energy efficiency and clean energy grants
$4.5 billion make federal buildings more energy efficient
$2 billion in grants for advanced batteries for electric vehicles

EDUCATION
$44.5 billion in aid to local school districts to prevent layoffs and cutbacks, with flexibility to use the funds for school modernization and repair
$25.2 billion to school districts to fund special education and the No Child Left Behind law for students in K-12
$15.6 billion to boost the maximum Pell Grant by $500 to $5,350
$2 billion for Head Start

HOUSING
$4 billion to repair and make more energy efficient public housing projects
$2 billion for the redevelop foreclosed and abandoned homes
$1.5 billion for homeless shelters
$2 billion to pay off a looming shortfall in public housing accounts

SCIENCE
$3 billion for the National Science Foundation for basic science and engineering research
$1 billion for NASA
$1.6 billion for research in areas such as climate science, biofuels, high-energy physics and nuclear physics

HOMELAND SECURITY
$2.8 billion for homeland security programs
            $1 billion for airport screening equipment

LAW ENFORCEMENT
$4 billion in grants to state and local law enforcement to hire officers and purchase equipment.

NEW TAX CREDIT
$116 billion for a $400 per-worker, $800 per-couple tax credits in 2009 and 2010.
            Last half of 2009, workers to see $13 extra in paychecks

ALTERNATIVE MINIMUM TAX
$70 billion to spare 24 million taxpayers from the alternative minimum tax in 2009
            Change saves family of four about $2,300 a year

EXPANDED COLLEGE CREDIT
$14 billion to provide a $2,500 expanded tax credit for college tuition

CHILD TAX CREDIT
$15 billion to provide the $1,000 child tax credit

EARNED INCOME TAX CREDIT
$4.7 billion to expand the Earned Income Tax Credit for low-income families

HOMEBUYER CREDIT
$6.6 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years

AUTO SALES
$1.7 billion to makes sales taxes paid on new cars tax deductible for 2009

RENEWABLE ENERGY INCENTIVES
$20 billion tax incentives for renewable / efficiency energy over 10 years
            Tax credit for families that purchase plug-in hybrid vehicles

BONUS DEPRECIATION
$5 billion to allow businesses buying equipment to speed up its depreciation

REPEAL BANK CREDIT
Repeal a Treasury provision that allowed firms that buy money-losing banks to use more of the losses as tax credits to offset the profits of the merged banks for tax purposes. The change would increase taxes on the merged banks by $7 billion over 10 years

DEBT LIMIT INCREASE
Statutory limit on the national debt up by $789 billion, to $12.1 trillion

Read Article: Highlights of House-Senate economic stimulus plan

There has been much talk about the nationalization of America’s banks in the last 3 months, since Obama has become president.  The idea of creating a bad bank, of forcing banks to take larger injections of taxpayer money, and of limiting executive pay have all been played out on the pages of our best newspapers.

For the first time since the crisis started, the treasury is starting to show plans that entail a “socialistic” approach to dealing with the problem. Skeptics might say that the banking industry got an infusion of $ 350 billion and a chance to solve their own problems. Others might say that once you start down this path, the pillars of American capitalism will almost certainly fall. But the simple truth is we have no idea what will happen.

At Whybanksfail, we are most currently against the destruction of capitalism. With out it WBF would never be around. First we would have the internet (a government creation) or banks to bash on. But truly we are overwhelmed with the idea that our banks might one day soon be control not by greedy bankers, but buy greed government.

So how will the government know what is needed. They will test.

“Nearly 100 federal banking regulators descended on Citigroup in New York on Wednesday morning. Dozens more fanned out through Bank of America, JPMorgan Chase and other big banks across the nation.”

Breakdown: The Test

·          New stress test for banks, devised by the fed

·          Regulators become the arbiters of American finance.

·          Treasury to decide which banks are strong enough to survive on their own

·          Which must accept new bailouts, with strings attached

Breakdown: Details

·          Exams for 18 of the largest banks are set to begin immediately

·          First results could arrive within weeks.

·          Not expected to be made public for every institution

·          Regulators to assess potential losses faced over two years

·          Look at exposure to derivatives/other assets normally carried off balance sheets

·          Discussions whether to apply the stress test to small and midsize banks

·          Amount of capital that banks receive will be based on the depth of their problems

·          Assumptions will be guided on a “worst case” basis

·          Weed out small, unhealthy banks, hastening consolidation in the industry

“New test more stringent than standards used to determine first round of the federal rescue”

It seems the government is stacking the chips in their favor. The only way a company can survive the stress test would be for them to raise the additional capital in the private markets. Since the private markets are frozen, giving that fact that private investors are unwilling to commit money because of uncertainty, the government will be able to force banks to take the money or risk being considered insolvent.  

The plan provides cover the government, as the banks have no option but to comply.  

Read Article: Bank Test May Expand U.S. Regulators’ Role