It appears that Citigroup and HSBC failed their stress tests, and that the Bank of America and Goldman Sachs passed only with modifications to their capital plans …

One wonders how much of the final decision was based on a “negotiated” deal rather than the “hard numbers” that were originally submitted?

Citigroup Fails Fed Stress Test as Goldman, BofA Alter Plans

Citigroup Inc.’s capital plan was among five that failed Federal Reserve stress tests, while Goldman Sachs Group Inc. and Bank of America Corp. passed only after reducing their requests for buybacks and dividends.  <Source: Bloomberg Financial News>

I have always been suspicious of certain financial institutions …

On December 3, 2007, I posted a list of financial institutions and asked if the top three banks were candidates for merger/acquisition to prevent their collapse, I updated the list on November 29. 2011 with a blog post,  A CRISIS OF FINANCIAL FAITH: IT IS ALL BEGINNING TO MAKE SENSE.

Borrower	Amount
Citibank, N.A.	$98,682
Countrywide Bank, NA	$51,050
Washington Mutual Bank	$43,711
World Savings Bank, FSB	$24,241
RBS Citizens, NA	$21,856
Sovereign Bank	$21,078
Bank of America Rhode Island, NA	$19,581
World Savings Bank, FSB	$17,263
U.S. Bank	$16,806
Bank of America California	$14,750

• Citibank, being one of the nation’s signature financial institutions is still in business – apparently by the grace of unseen hands at the U.S. Department of the Treasury and the Federal Reserve.
• Countrywide Bank is no longer in existence, the assets were acquired by the Bank of America.
• Washington Mutual Bank is no longer in existence, the assets were acquired by JPMorgan Chase.
• RBS Citizens Bank still operates as a wholly owned subsidiary of the Royal Bank of Scotland Group, with the company's controlling shareholder being the British government.
• Sovereign Bank is still operating and is a wholly owned subsidiary of the Spanish Grupo Santander.
• World Savings Bank is no longer in existence, the assets were acquired by Wachovia. Wachovia was acquired by Wells Fargo.
• U.S. Bank is still operational and appears to be one of the best managed banks in the group.

Looking back over the list, we find that, in spite of the Federal Reserve and the U.S. Department of Treasury screwing over depositors and investors with its “ZIRP” --Zero Interest Rate Policy -- to recapitalize technically insolvent banks by allowing them to borrow good funds at a near zero cost and insuring a profit, certain financial institutions continued to grow in size and pose a greater systemic risk.

Depositors and investors, especially senior citizens who get a meager 1% or 2% on their hard-earned money cannot even break even in a world of rising inflation and lessening purchasing power. Meanwhile, the executives that run these behemoth institutions bank their bonuses – possibly off-shore and in hard assets  -- while doing little more than sitting on their assets.

As for the regulators, we have a new super-regulator that is more interested in socialist ideology and wealth re-distribution than demanding that certain financial institutions downsize and improve their core capital ratios above the bare minimums needed to pass phony-baloney stress tests. Almost as if the government’s regulatory agencies were hyper-politicized and directed by a fifth column who was determined to destroy America and capitalism from within.

Bottom line …

Due to the revolving door between the large financial firms and the government’s regulatory agencies, plus the cronyism and corruption within the Obama Administration, I wonder if any government numbers or stress testing can be relied on to actually tell the truth when it comes to reducing the systemic risk posed by the so-called “too big to fail” financial institutions. Or, given the magnitude of the problem, whether or not any government action can safely and soundly resolve a technical insolvency in the case of a severe market downturn.

As I mentioned in my previous blog post, FED STRESS TEST A JOKE: $501 BILLION IN LOSSES MAY BE A DROP IN THE BUCKET, I have every reason to believe that the current stress tests only highlight the tip of a very large iceberg and unless these firms voluntarily downsize and divest themselves of non-core activities, we are due for another recession or worse.

It appears that those in control are repeating the exact same bubble scenario we have seen with billion dollar technology companies that failed in the dot com bubble, the mortgage operations we saw in the mortgage bubble, and the derivatives scenario we saw almost destroy our financial system.

We need to remove the radical progressive socialist democrats from the House and the Senate in 2014 and the White House and government agencies in 2016. We need to clean up the corruption in the government, reduce or remove corrupt public employee unions, and above all, start investigating and prosecuting those who have committed the financial crimes against consumers and taxpayers than make Bernie Madoff look like a choir boy.

-- steve