Inflating Bank Vaults and Stock Prices


The Obama administration believes its plan is working to re-inflate the banking system with trillions in cheap money, which most of the large banks are depositing back into the Fed’s coffers at higher interest.

This asset raise mechanism along with the highly favorable unwinding of credit-default swaps with AIG, allow the banks to slowly rehabilitate their tattered balance sheets, all on the backs of taxpayers.

Wells Fargo’s earnings preannouncement this week was icing on the cake for Wall St. The traders in NY and Chicago ran the bank stocks up despite the dire forecasts from banking analysts released last week.

But all this balance sheet propping is to repair the damage from subprime toxic paper. There are other legs down for these firms. The asset-backed paper for mortgages written to better credit risks is about to hit the fan. Commercial property paper is also on the horizon along with credit cards, auto and student loans.

All this other paper has not created the number of writedowns that subprime is responsible for so far. The TALF and PPIP initiatives were to address these troubled “assets” but both are having difficulty getting off the ground.

Then Goldman Sachs comes out on Good Friday –– when the markets were closed –– to say its looking to do a capital raise in order to pay off its $10 billion in TARP loans in order to free itself from government control over compensation.

To add to the farce, Treasury’s Tim Geithner has requested that the banks not reveal the results of the stress test, which sources within the FDIC have called a farce, for fear of affecting earnings reports.

Geithner has also stated that no bank will be nationalized or suffer any other consequences over a failed stress test because you can’t punish over a theoretical failure.

Bazaar tactics dependent on unprecedented actions by both Treasury Department and the Federal Reserve have some believing we are seeing a turn in the viability of banks.

There may be a one or two large banks that will see their way out of this morass, but most of these institutions will be far different coming out of this “depression” than when they went in.

For more on Wall and Washington and the cratering economy see:

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