Wall Street regulators colluding with banks again

The Big Bank Stress Tests came about in the Dodd-Frank bill in 2009. The idea was that systemically important banks had to have reserves enough to survive a recession.
Two weeks ago all 35 big banks passed the stress tests.

Or did they?

Deutsche Bank ended up failing the stress test, but investors simply ignored the results.

Goldman Sachs analysts said the U.S. Federal Reserve’s issues with Deutsche Bank were “long standing” and “not new”, while UBS said the failure was “not a total surprise.”

It was interesting that Goldman mocked Deutsche Bank, because behind the scenes Goldman Sachs was screaming bloody-murder.
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On Thursday evening, after the release of the first stage of the annual bank stress test, Goldman Sachs Group Inc. put out a statement indicating that it was unhappy with the results and said that it planned to air its grievances with the Federal Reserve. The bank said its estimate of how much it would lose in an economic downturn “diverged” from the Fed. And it suggested that after a talk with the Fed, the regulators were sure to see things Goldman’s way. “The [Dodd-Frank Act Stress Test] ratios that are published today may not represent our firm’s actual capital return capacity, which may be higher than this year’s test would otherwise indicate,” Goldman said in a statement.

Now why would Goldman Sachs think that they could get the Federal Reserve regulators "to see things Goldman’s way"?
Maybe because the Fed isn't really a regulator at all. Instead, the Fed has completely betrayed it's role as bank regulator, and has become the Protector of Wall Street.

Federal Reserve officials told Goldman Sachs Group Inc. and Morgan Stanley that they were about to flunk a portion of the annual stress tests but offered them a deal to avoid an outright fail and continue paying billions to shareholders.

In phone calls to executives of the Wall Street titans on June 21, regulators told them that to fully pass the test, they would have to cut almost in half the combined $16 billion they had hoped to pay out to shareholders, according to people familiar with conversations between the Fed and both banks.

But Fed officials gave the banks an unprecedented option: If they agreed to freeze their payouts at recent levels, they would get a “conditional non-objection” grade and avoid the black eye of failure. That meant the banks could pay out a combined $13 billion, or about $5 billion more than what they would have given back to investors if they had decided to retake the test and get a passing grade.

It also will boost a profitability measure that helps determine how much Goldman Chief Executive Lloyd Blankfein and Morgan Stanley CEO James Gorman are paid.

So when the choice came between a) give less money to shareholders, or b) change the rules to reward bad behavior and undermine the entire concept of the tests, the Fed chose "b".

“The Fed was very kind,” said Arthur Angulo, a managing director at Promontory Financial Group and a former Fed official. He added the Fed’s exercise of discretion on the quantitative portion of the test was “a potential slippery slope.”

I know that many people were angry about Congress gutting Dodd-Frank a few months ago, but the fact is that if the regulators aren't really regulators, then Dodd-Frank is a dead letter anyway.

“In the past, bank stress tests were real tests,” the Ohio senator said Tuesday afternoon. “These days, it is more like a cozy conversation between friends.”
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@gjohnsit
it applies here too

“In election after election, voters have shown they simply don’t believe many of these parties offer real change. After a decade of austerity following the bankers’ crisis, years of stagnating living standards and rising insecurity, working class communities in particular are simply not prepared to accept more of the same,” Mr Corbyn said at an event organised by the Dutch Labour Party in the Hague.

“My message for our European sister parties is simple: reject austerity or face rejection by voters. If our parties look like just another part of the establishment, supporting a failed economic system rigged for the wealthy and the corporate elite, they will be rejected – and the fake populists and migrant-baiters of the far right will fill the gap.”

He called for a “new economic consensus to replace the broken neoliberal model, which has failed working class people, fuelled inequality and insecurity, and sucked wealth away from the majority to an elite few at the top” and told his allies to rediscover their “driving radical purpose”.

“It’s time for change in Europe. But Europe’s socialist parties will only lead that change if there is a clear rejection of an economic and social model that sets workers against each other, sells off our collective wealth at knockdown prices and gives one undeserved handout after another to bankers, corporate bosses and tax dodgers,” he said.

“If we don’t lead that change, others certainly will. The broken system has provided fertile ground for the growth of xenophobic, scapegoating politics. Unless we offer a clear and radical alternative, and hope for a fairer, richer future, the politics of hate and division will continue to advance on our continent.”

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blamed. However, Clinton,Bush, and Obama are the real enablers. After 2007 it is hard to see how anyone can pretend not to see the next crash coming. And it will likely be worse.

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chuck utzman

TULSI 2020

ggersh's picture

@chuckutzman think http://www.scionofzion.com/federalreserve.htm

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I never knew that the term "Never Again" only pertained to
those born Jewish

"Antisemite used to be someone who didn't like Jews
now it's someone who Jews don't like"

Heard from Margaret Kimberley

Pricknick's picture

Regulators colluding with banks again?
Can you or anybody tell me when in recent history that they didn't?
It's a great game if your one of the players.

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Regardless of the path in life I chose, I realize it's always forward, never straight.

I'm familiar with engineering stress tests. A statistical sample is taken and stressed to destruction to see what the real limits are compared to the calculated limits.

No bank was stressed to destruction in these "stress tests". They were really bank examinations and not stress tests at all.

And regarding G-S: I've done quite well in my IRA by taking their recommendations as contra-indications.
It's very transparent. They talk up what the want to sell and bad mouth what they plan to buy. After all, they have no fiduciary duty to the public nor their own clients!
And, quite obvious, honor is just an actress' name to them. Or maybe they hear the word as "on her".

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I've seen lots of changes. What doesn't change is people. Same old hairless apes.

snoopydawg's picture

He called for a “new economic consensus to replace the broken neoliberal model, which has failed working class people, fuelled inequality and insecurity, and sucked wealth away from the majority to an elite few at the top” and told his allies to rediscover their “driving radical purpose”.

We have been calling for this for how long now and the bastards are still there doing the things we don't want them to. After they rigged the primary against Bernie people dem exited and many refused to vote for the "her turn" candidate and still Pelosi and Schumer are saying that nothing needs to be changed. They just think that if they find the right message then voters will flock to them. Unfortunately people are buying it. So there goes the chance to vote them out.

I'm sure that DK is just a small example of how many democratic voters think, but seeing them saying that it doesn't matter right now what the candidates believe in they are going to vote for them anyway. Even the blue dawgs that have been voting with the republicans to give Trump whatever he wants.

"Those blue dawgs have to do that because their voters won't vote for anyone more progressive." Now how the holy blue f*ck does this make sense? They think that those voters actually want the banks to be able to screw them? Or let Trump have more power to spy on them? Or whatever else he want that will make their lives worse? Good grief, how dumb do you have to be to believe that? The saying is that if a fake republican and a real one people are going to vote for the republican every time. This is just an excuse that the democrats have told people for .... ever?

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Which AIPAC/MIC/pharma/bank bought politician are you going to vote for? Don’t be surprised when nothing changes.

Big Al's picture

@snoopydawg Smile

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Big Al's picture

@Big Al 100 days of Obama?

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snoopydawg's picture

@Big Al

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Which AIPAC/MIC/pharma/bank bought politician are you going to vote for? Don’t be surprised when nothing changes.

thanatokephaloides's picture

@snoopydawg

The saying is that if a fake republican and a real one people are going to vote for the [real] republican every time. This is just an excuse that the democrats have told people for .... ever?

It's not an excuse.
It was true when Harry Truman said it; it's true today; and Pelosi, Feinstein and Company are quite OK with it. They'd rather the GOPpers be to this country what the Communist Party was to the Soviet Union, than to have the likes of JFK or even LBJ running things.

We don't need Pelosi, Feinstein and Company running anything. Which is why Donald Trump is now President.

Now how the holy blue f*ck does this make sense? They think that those voters actually want the banks to be able to screw them? Or let Trump have more power to spy on them? Or whatever else he want that will make their lives worse? Good grief, how dumb do you have to be to believe that?

Go into your downtown, O dweller in a military town, and ask them.

I assure you that you will encounter voters who actually beLIEve in all of that. And vote accordingly with full malice aforethought.

I blame military "training".

Diablo

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"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar

"All power corrupts absolutely!" -- thanatokephaloides