Stress Test Results in Adding Just More Stress

Wednesday, April 29, 2009

Rumor has it that US Regulators have told the two largest US Banks, Citgroup and Bank of America, that the results of their "stress test" show that will require further capitalization. What this means in simple terms is that the banks are not ok - they have so much debt, bad debt at that, and they are in need of more money to help them stay afloat.

We all knew that Citigroup was a zombie bank, a bank that is dead, bankrupt, kaput, but is being sustained by the generosity of the US taxpayer (with the help of the Chinese treasury Bill holders, of course). But after the results of Treasury Secretary Tim Geithner's test on bank stability - aka The Stress Test - we are witnessing the fact that the US has no intention of following through on their plan to fix the banking sector. It was said that the results will determine the fate of the banks - if they show that they are in fact needy of further capitalization, the US would either systematically disassemble the banks in an orderly manner, or let them fail outright.

The problem is, when the plan was announced, if you remember, it was amidst much criticism that the US did not really have a plan - that they were being too soft on banks with severe problems for fear that their bankruptcy would cause a panic. So Geithner came out with the stress test idea and said that banks that do not pass, will be reorganized (A nice way of saying taken over). But now the outcome has changed - and it seems that the US banks that are at the heart of this whole credit mess will be getting more money to run their failing operations. It looks like the whole plan was to get these results out AFTER President Obama's first 100 days, the yardstick that sets the tone for the presidency.

Is it not ironic that these results were planned for Obama's 101st day?

Wednesday looks like it is shaping up to be a tough one for the US Dollar as risk appetite returns for a bit. I call it profit taking - it will be short lived.


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