Displaying items by tag: unemployment

A blast from the recent past:

A small exert from Reggie Middleton on Bank stress testing:

http://boombustblog.com/Reggie-Middleton/907-More-on-Reggie-Middletons-Bank-Stress-Testing.html

The FDIC has released a document describing the stress test and the parameters used to assess the banks health under assumed base case and adverse case scenarios. Unfortunately, their adverse case scenarios are actually the base case scenarios. Look at the appendix of this document from the FDIC (I will save it if I were you to ensure that it doesn’t disappear when word gets out), and you will see an unemployment “adverse case” of 8.9% and a average baseline case of 8.4%. Well, the baseline case is already too optimistic. This is a fact, since I just pulled the government’s own numbers (see below) and unemployment for the month of March is currently 8.5%! Thus, you can see where the baseline assumptions are already too optimistic, without a doubt. If one were to look at the rate of increase of unemployment, it would not take much imagination to see the actual rate easily pierce the “adverse” case before the end of 2009 (we are near the adverse case alreay, and this is just the beginning of the 4th month of the year). If this were to be true, it would be safe to assume the stress tests to be a total farce, with realistic numbers showing banks to be in far worse conditions. Be aware that I am not using shadow stats, or numbers derived by basement bloggers, but the actual numbers released by our fair government.

Five months later and unemployment is pushing 10% with an average of about 9.7%-ish. The banks returned the TARP based upon a worst case scenario about 100 basis below where we are now, with unemployment still climbing. Why hasn't anyone required a new round of stress testing???

I recently recieved this question via email, and have put my reply below:

Reggie,

  I would like to know if you thought the stress test results would be too tough, too lenient, or just right, given that (per Bloomberg), some 6 out of the 19 banks need to raise more capital.

  Personally, I think the real number of banks failing the stress tests should be higher, especially because of their credit default swap exposure, etc.

  You are probably the best guy to ask about this (and I don't have a paid subscription so as to read your stress test results).

  What is your estimate about how many of the 19 banks should really fail a real stress test?

I recently recieved this question via email, and have put my reply below:

Reggie,

  I would like to know if you thought the stress test results would be too tough, too lenient, or just right, given that (per Bloomberg), some 6 out of the 19 banks need to raise more capital.

  Personally, I think the real number of banks failing the stress tests should be higher, especially because of their credit default swap exposure, etc.

  You are probably the best guy to ask about this (and I don't have a paid subscription so as to read your stress test results).

  What is your estimate about how many of the 19 banks should really fail a real stress test?

Since so few people actually read government docs when they are released, I decided to post a summary of the report from the SIGTARP - the TARP special investigator. 

Summary of SIGTARP Report on TARP programs

TARP funds are expected to be deployed under 12 separate programs. Originally, TARP was envisioned to involve purchase, management, and sale of up to $700 billion of "toxic" assets, primarily troubled mortgages and mortgage-backed securities ("MBS"). However, subsequently, the scope of and the funds involved under these programs increased dramatically and the total funds involved, after including Federal Reserve loans, FDIC guarantees, and private money, are expected to reach nearly $3 trillion.

As of March 31, 2009, Treasury has announced the parameters of how $590.4 billion, out of $700 billion TARP funds, would be spent. Out of this, about $328.6 billion has actually been spent as of March 31, 2009. Following table summarizes the details of the 12 programs.

Since so few people actually read government docs when they are released, I decided to post a summary of the report from the SIGTARP - the TARP special investigator. 

Summary of SIGTARP Report on TARP programs

TARP funds are expected to be deployed under 12 separate programs. Originally, TARP was envisioned to involve purchase, management, and sale of up to $700 billion of "toxic" assets, primarily troubled mortgages and mortgage-backed securities ("MBS"). However, subsequently, the scope of and the funds involved under these programs increased dramatically and the total funds involved, after including Federal Reserve loans, FDIC guarantees, and private money, are expected to reach nearly $3 trillion.

As of March 31, 2009, Treasury has announced the parameters of how $590.4 billion, out of $700 billion TARP funds, would be spent. Out of this, about $328.6 billion has actually been spent as of March 31, 2009. Following table summarizes the details of the 12 programs.