If you think the stress-testing of banks is designed to protect the public from bank failures (the traditional role of bank regulators) think again!
The banking authorities are twisting the concept of stress testing to do precisely the opposite:
1. Bad tests. Traditionally, tests are designed so that they honestly pick up both weaknesses and strengths, awarding failing or passing grades accordingly.
How regulators are doing precisely the opposite: It has been assumed — and publicly announced — that ALL banks, no matter how close to the brink of failure, will pass the test!
However, when the Treasury bailed out banks this year, it tacitly acknowledged that several major banks are already on the brink of failure. How, then, can they pass a test that, by definition, assumes an even deeper deterioration in the economy?
Moreover, our own stress tests, using fourth quarter Federal Reserve data and performed without a political agenda, demonstrate that most of the nation’s largest ten banks are at risk of failure. (For the names of the largest banks at risk, see http:/blogs.moneyandmarkets.com/martin-weiss/jpmorgan-chase-goldman-sachs-citibank-wells-fargo/.)
2. Rewarding failure: Traditionally, if a bank gets a low grade, it is the obligation of regulators to pro-actively shut it down or severely restrict its ability to acquire new deposits and make new loans or investments. If it gets high grades, it would generally have a better opportunity to continue to grow its business.
How regulators are doing precisely the opposite: Banks that get the lowest grades will be rewarded with new infusions of taxpayer capital. And as capital is diverted to the weakest banks, those that get higher grades could consequently find it relatively more difficult to raise capital in the financial markets.
3. Poor disclosure. It is widely recognized that one of the best way to protect the public is to disclose the relevant financial data and let individuals make their own decisions regarding where to place their funds.
How regulators are doing precisely the opposite: The authorities have been extremely reluctant to release the results of the stress tests, and when results are finally disclosed, they are designed to make it difficult for consumers to make informed decisions.
For a more detailed analysis of official cover-ups and resulting financial disasters, see Chapter 4 of my book, The Ultimate Depression Survival Guide (John Wiley & Sons).
For concrete proposals on how to reform the banking system, see our white paper, at http://www.moneyandmarkets.com/files/documents/banking-white-paper.pdf
And for more analysis of the latest news on stress-testing of banks, see Mike Larson’s most recent blog posting at http://interestrateroundup.blogspot.com/2009/04/this-isnt-lake-wobegon-not-all-banks.html.
{ 35 comments… read them below or add one }
Martin,
I want to congratulate you for your courage and honesty. If it wasn’t for guys like you, the actual oligarchy with bansters would never be discovered.
I invite all of your lectors to visualise this clip featuring Mr. Jeffrey Black: http://www.pbs.org/moyers/journal/04032009/watch.html
Scared the hell out of me. Mr. Black could probably be a good allied for your campaign.
Keep the good work and god bless you.
Martin:
In reading your notes and commentary, I am always left with the feeling that what can I do as a Canadian to insulate myself from what the US is doing. Certainly our banking system is more stable and better regulated but like everything else, our economy is very closely linked to what the US does. As you say the US economy and government response is non-sensical so it means more woes for those of us in Canada who have behaved prudently and fiscally responsibly. Thoughts?
Ian
Martin, I have done everything you asked in your book and Safe Money Report. I bought a range of inverse ETF’s to save myself from going deeper in the hole, however, all the inverse ETF’s I bought are down 25% to 30%. Now I don’t know what to do. Do I stick with these ETF’s or…..I am not sure what or is. Can you help.
Lawrence
Great book. Referred it to others as a must read!
I previously watched the Black interview on Bill Moyers journal. I don’t understand why, if the law is being broken-which it is, some entity in the government can’s stop this. Who’s job is it to enforce a valid law at the Federal level? I would suggest that you click the Black “blog” link for a detailed review of the law passed governing banks & S&L’s. That’s who I’d like to write and complain to and visit if necessary!!!
I’m short the Dow via ETF’s, own gold (EFT/GLD), and now shorting Treasuries (EFT’s).
I understand everything being said in M&M and I bought and read the book. I’m sitting here watching the Dow continue to climb and I’m flabbergasted! I don’t think I’m wrong, but can you really fool all of the people all of the time? That dead cat has bounced pretty high to date. What seminal event will occur (as it did in the early 30’s) that will drop the Dow back down to the 6K range? The market doesn’t seem to be reacting to what is fundamentally very bad news. What happened to rationality? I’d really like to know “who is John Galt?”
Martin,
I love the work that you and your team does. Thank you!
Its a constant reminder of how the world should be working and of how wrong things are going wrong. But I do wonder at times if this mega bailout strategy isn’t really “the poision pill” the government advisors really ( secretly) belive the country needs to get it back on its feet… How?.. Perhaps the thinking is to save the counrty’s big institutions/jobs, homes etc.. (keep the voters happy) by printing as much money as they can to cheapen the dollar so we can’t afford to buy foreign products any more, we’ll have to produce more here at home & therfore rebuild the manufacturing sector, rebuild the working class and start exporting again. What do you think?
have got your book and read it – not sure it has done me any good being in the UK _ sold my banking shares in march – they have now gone up so I missed out – now too scared to buy them, the market continues to rise – it may be a bear market rally but is it the same in the UK as USA
Dear Martin. I’ve subscribed to your newsletters and paid attention to much of your information over the years, however, I have a question that is truly bothering me. If the gov’t actually were to do as you suggest and just let all the banks, corporations, etc. fail, what is your plan to feed and house the multi-millions of jobless who will not have any way to live? Unemployment will rise horrifically to huge numbers. Will we give everyone unemployment for as long as necessary? not just a few months as now.
Do we just let them die in the streets, do we let them become mobs who terrorize neighborhoods looking for food, water, and a place to stay? This multi-trillion $$ economy of ours will take a lot of momentum to get going again, and if we allow it to go to the very bottom, it’ll perhaps not get that momentum going again for as long as it’s taken to fall. Just think 1930 to 1940 and consider that very few at that time were used to the standard of living we have today. The mob scenes will arise much more quickly in our current times than they did then.
Worried citizen who respects your background but is wary of some of your advice.
I live in central, rural LA. The main industries in my Parish (county to you) are quite a few State prisons; the school board; an Indian Casino. My patients who work at the Casino tell me that they are very busy right now. Obviously, the prison and school board are fairly static in the amount of their employees.
The only industries that are having lay offs are truck drivers who haul wood pulp and the people that work in the woods. That surprises me as the Government must be using more paper than ever.
I am a 73 yo Solo GP. I stay as busy as I want. I don’t plan to retire – EVER!! What would I do with my time at home?
Heartfelt Thanks!!! Because of your help I was able to get my investments, most notably my 401k out of harms way. Sadly when trying to share your thoughts and insights with others it seems there is a wall that keeps many from acting. In spite of the grievous losses some of them have had they are just waiting for everything to suddenly be OK again. Typical comment “when does he ( you ) predict a bottom?” Showing a complete lack of recognition that a fundamental change has occurred. I share your concerns about our great nations path. Keep up the excellent analysis.
Sincerely Rich
Martin – I am with you in the Grassroots and have signed your petition. Thank the Lord we have a man of your stature, as there are not many left today.
I intend to buy your book this next week. I have not ordered on line as I do not give my credit card on line to any one. I either call or will go to the bookstore and get it. I have been busy writing my own book on Socialism/Communism/Islam which are the big threats to our freedom at this time.
I have just finished my book and it will be entitled, “Can You Fix It” and will probably be on the market in August. I intend to send you a complimentary copy and would love to have your suggestions, good and bad!
I cannot understand why any American voted for the present administration. I think the public was so intent on showing their hatred for Bush that is the reason it was a landslide vote. It is like the old adage of “cutting off your nose to spite your face”. The Arabs elected our president!
America will rue the day they have been so harsh with Bush! The mess we are in started back in 1913 and has continued with every administration thereon. Both Republican and Democrat. No administration nor president is perfect as we are only human. But when some have blantantly disobeyed and flagrantly assailed our great Constitution and our forefathers principles, we wonder what kind of people have we produced over here in our great (or formerly great) country.
In my book you will see the section on Sharia Law (Muslim) and our president as of late is now chiseling away at two institutions of our government that will make it possible for Sharia Law to be established.
The first one is blaming everything on Wall Street and while they are not blamelss, there would be no Wall Street allowed under Sharia Law.
The second erosion now just passed by our stupid congressional members is the chiseling begun of the Credit Card Companies and under Sharia Law there would be no credit card companies existing. Sharia Law prohibits any income made out of usury money or interest made and Wall Street operates much on this same theory.
When we have a president who is powerful enough to fire the CEO of a private company as GM Motors and who seems to be taking control of the automakers, then that is power that our forefathers are turning over in their graves with now. First it was the bailout of the banks with the TARP money which is nothing but the socialist monetary system which will indebt our unborn generations for at least six generations and drive us into weakness so we will be apt to fall under a foreign government.
When America will return to godly living and ask God to heal our land, only then can we turn the tide back. We can do it, but it is up to each American to take the commitment. The question is Will we do it?
Keep up your good work and while you are in Washington get rid of most of the 545 Congressional members and lets start a new slate.
Betty Hanson
Stil waiting and anxious to receive my backorderd GUIDE though only short term will work for me at 86.
Martin
Thank you is not enough. I will have an opportunity to sell my home, but sadden by the loss of equity over the past 3 years. I bought and read your most recent book- The Ultimate Depression.
I have to be honest- I don’t want to believe what you have researched, but I know it ’s true. I’m doing what I can to be prepared.
martin,i have almost finished your book.in general my wife and i have been in line with your rec’s.i am delighted at your confidence that we’ll come out of this mess.this is important.thanks,jules
Martin, your updates and insights have helped me secure my families future. In as much as is possible given the insane policies of the worlds central banks. Global stimulus not only prolongs the depression but the next decline will be much steeper and faster than anything the modern world has ever experienced.
Any rebound in the markets at this point is a dead cat bounce. I have paid down my debt and stocked up on tools, tires , and of course gold and silver. We have an emergency plan in case of a bank holiday and read all your newsletters and alerts.
We also have ample cash to buy select stocks when the real bottom is reached. thanks, bob
i am in process of garning all cash and holding on to home. we are living on SS and having trouble getting job for sup income. What i want to know is am i sitting here waiting to short the S and P is that crazy. i have dabbled in forex but uncomfortable i guess just like big board to much up and down is the dollar going to seriously tank or not and will we get to point where i can invest all liquid cash i am garnering at a rate of 13 % plus if i could get that then that would cover house payments and SS plus pt job would cover everything else. thats my game plan short s and p and invest cash at high int rate on govt securities
Hi Dr. Weiss
I’ve been following since the 1990s, back when I was Vice President of Safe Harbor Investment Partners, Ltd. I used your ratings to make sure my clients were making the right financial decision, so I know your track record.
With that background, I want to thank you for taking on this public education and American advocacy project.
As you know, the Federal Government unleashed this crisis and played cover-up for all of the Fraud in Fannie and Freddie, as well as the other market bubbles, booms and busts.
My question is this: We have a Government that is a total fraud and a clueless voting public that just elected the worst fraudulent Administration and congress in our nation’s history.
My opinion is that the infantile narcissists who now largely make up the voting public in this country are congenitally incapable of comprehending the truth and, worse yet, do not even care to know what it is. Everyone seems to think that the solution is more cover-up and more fraud. All they’re waiting for is for Obama and the congress to bail-out the Tulip industry. They seem to have not even the barest awareness of the truth causes of this crisis and the government’s, particularly the democrats’, role in creating it.
My Question is this: based on past history, how bad will the depression have to get—number-wise—before people come out of their trances, shake free from their delusions (etc.) that the government can save us from this debt and fraud crisis by spending into more debt and continuing the massive fraud?
In other words, how much electric shock—what level of financial voltage—is needed to jolt people back to reality.
I’m asking because I do not see anything but the most massive collapse bringing people back to reality.
Can you speak on the rumor about the Obama IRA plan to take control of all retirement accounts containing the hard earned money we the people have saved all our lives.
Please tell me this rumor is nothing more than bs.
ref: Mining Speculator 4/30/09
Thanks so much,
Tore
is my money safe in regions financial bank. thanks
Why did you change the minimum buy in amount to
$10,000 from $1,000 for T-bills? $10,000 may not be much to you but it is to me and eliminates any chance I have to invest with you.
Martin,
I bought and read your book and I must say it is a phenomenoal and path breaking book. I am still enjoying reading it. I have also subscribed to Real Wealth report after reading your’s and Larry’s articles on your website. Probably, will also subscribe to Safe Money Report in the near future.
I am still invested heavily into stock market through gold, silver and uranium stocks (that I bought in last few months) and also mutual funds tied to energy, metals and precious metal sectors bought at highs before Oct. 2008.
I will appreciate very much if you could throw some light on the future of precious metal and energy sectors in the coming great depression (althoguh Larry is quite bullish on them in his Real Wealth Reports).
Cheers and regards,
Dilip
You sometimes refer to the IMF, taking their pronouncements at a face value. I wander if you’re familiar with the transcription of a video, made sometime around 1995 by a former Oklahoma attorney general (I think) , predicting the current situation almost to a t. He depicts The IMF as the world’s ultimate crime syndicate, and he has a similar view of the Federal Reserve. Some of the Rotschild’s and Rockefeller’s quotes clearly support that point of view. Here is that website and what do you think about it?
http://www.iamthewitness.com/DarylBradfordSmith_Bankers.htm
All my assets are totally debt free.No mortgages on my house or my office bldg of about 8000 sq ft. Cash is with a local Horizon Bank here in Austin at 3.75% and inquiries indicate the bank is in good shape, with no mortgage failures. The bldg is fully leased by my son’s company and he is in excellent shape. Right now I feel very secure . I am still reading your book.
Dear Martin,
I have followed your advise and got the last portion of my money that was not as safe as it should have been into treasuries. I still have some Series I bonds, how safe are these, should I hold them or transfer also into treasuries. I purchased your book for all of my children, and they also are doing what they can with their money.
Best Regards,
Julius Gagliardi
i truly appreciate your effort to protect the tax payers .i am enjoying your book ,great deal of factual information .you have my support about the bailouts .
you have been so negative about this market but the market is up almost 30 percent in
last 6 weeks and so many of your followers are missing this rally .
as much as i respect your opinion ,but my own portfolio is up more than 30 percent .
again thanks for all hard work you do to protect tax payers and making the public
to be aware of all bailouts and what,s going on in washington with taxpayers money .
best regards iraj
Martin, is there a divergence between your view of the current economic situation and the views of your associates? I see diverging advice, especially regarding the stock market, and wonder if the separation of newsletters reflects the change.
I am almost exclusively in t-bills and have been out of the stock market for years. I do not understand the ETFs and so have not joined your investment group. I can see that there are opportunities, however I am loath to accept the risk of investing where I do not have enough knowledge and do not trust the broker’s information.
Our investments are mainly in real estate, commercial, industrial, and residential and I am aware of the risk there. I do, however, feel more in control of a tangible asset. I do not trust paper of any kind, t-bills excepted.
Jack
great book! Question: how do you feel about muncipal bond funds as opposed to individual funds?
I am almost finished reading your book. I have an IRA (personally funded), a 401K through my employer and quite honestly, before I read your book I wanted out of the stock market until some strict changes are made. I am completely fed up with being bamboozled by the big shots of “Wall Street”. Many of my co-workers and friends ended up losing over 30% of their retirement nest egg. I have gotten to the point to where I don’t care if the whole house of cards collapses on the banking industry and investment industry. My job is being threatened and I am a nurse and my son who finally was able to get a decent paying job two years ago, has barely worked. I opened an account with the Treasury and once I close my accounts tied to the stock market, I will put my money in T Bills until the current administration gets a clue and STOPS rewarding lousy money management.
I would like to see you produce a list or verify a legitimate website that rates Credit Unions.
Thanks.
Greg
What is your opinion of the following which I have in my Trust Account with Edward Jones? These are ranked in order of dollar value, from highest to lowest:
1. Capital Income Builder Fund A
2. Federated Liberty US Gov. Mmkt A
3. Franklin Gold & Precious Metals A
4. Vanguard Total Bond Market ETF
5. Powershares Global Insured Natural Resources
6. Central Fund of Canada
7. Capital World Growth & Income Fund A
Which of these should I sell now to protect my capital? I’m planning to pay down my home mortgage by about $20,000 and get a new 15-year fixed loan at 4.5%.
Do you co-operate/liase with other ‘good guys’ like Lyndon LaRouche who seem to have similar ideas and suggestions ? He also has a large following !…………..Regards.-.D
Dear Martin,
I really enjoyed your book, as it seems to be in alighment with what Harry S Dent says in his book (The Great Depression Ahead). I have a financial planning practice in Australia and have advised a lot of my clients to move there money into cash accounts in Australian banks which have been better regulated than the USA banks.Although the markets have recovered a lot in the last month. The govt here is telling us along with most econimists and media that we seem to be coming out from the worst of this crisis although the people keep loosing there jobs and companies keep going bankrupt. I feel im in the minority telling my clients that we are headed for a depression.I also have debt against my business and have contemplated selling my business to get out of debt and be cashed up myself for the biggest buying opportunities in 100 years. although my clients would be left to the optimists and be talked into getting into shares now. Any advice for the advisor from down under.
Warm Regards
Colin
Please let me (us) know when a Market downside correction is imminent. Do you plan to?
Thank you so much
Tom
I Live in the Uk but have followed your columns with great interest and have noticed sometimes the change in your emphasis. Whilst you had no alternative but to elect Obama as the alternative was not good news should you not try and support him in his endeavours to deal with something he did not create. All of us are partly guilty by being too greedy which fueled this situation. I am not well into my late seventies and cannot work to remedy any loss of income and am fearful of my not being able to take care of myself. I have always saved, invested, saved for my pension pot and did everything I was taught not to live beyond my means. However, where is the learning going to take place for the youngsters of today and tomorrow. Can the youngster know how to cook and make good meals on a little ingredients, mend clothes and repair. All of this should be given to them by their parents, the schoolds they attend and society in general including the government. Obama did not have it easy so he knows those values so please also give him some support and guidance in this troubled world which not only has money problems but religious problems as well. Best of luck and I will continue to follow your emails and please do once especially for the older members of your society who must be very troubled in your country and they are in mine. Perhaps you should consider starting clinics with some of the money from your book to educate and support? Regards Audrey Heard
Dear Martin,
I am thankful for the statistics you provide to show the total stupidity
of the “rulers of the world” whose deviousness has brought about world war 3 without
the bullets. Wealth comes from the ground,sea, or is manufactured. Those that stand
on the shoulders of the masses only make things more difficult by inflating prices,
homes being the most damaging. My money has been nowhere near the stock
market for a number of years other than equity ISAs and is spread around as much as
possible to keep it safe within government guarantees. Hope this is useful to your
research. Best wishes, Peter Munday