Citi Fails Fed Stress Test … The REAL Story

“Too Big To Fail” … Fails

Bloomberg reports that Citigroup has failed the Fed’s new round of stress tests:

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.

Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of qualitative concerns about their processes, the Fed said today in a statement. Zions Bancorporation was rejected as its capital fell below the minimum required. The central bank approved plans for 25 banks.

In reality, Citi flat lined” – went totally bust – in 2008.  It was insolvent.

And former FDIC chief Sheila Bair said that the whole bailout thing was really focused on bringing a very dead Citi back from the grave.

Indeed, the big banks – including Citi – have repeatedly gone bankrupt.

For example, the New York Times wrote in 2009:

Over the past 80 years, the United States government has engineered not one, not two, not three, but at least four rescues of the institution now known as Citigroup.

So why did the U.S. government give Citi a passing grade in previous stress tests?

Because they were rigged to give all of the students an “A”.

Time Magazine called then Secretary Treasury Tim Geithner a “con man” and the stress tests a “confidence game” because those tests were so inaccurate.

But the bigger story is that absolutely nothing was done to address the causes of the 2008 financial crisis, or to fix the system:

  • The faulty incentive system – huge bonuses that encourage reckless risk-taking by bankers – are still here
  • Another big problem – shadow banking – has only gotten worse

Indeed, the only the government has done is to try to cover up the problems that created the 2008 crisis in the first place … and to throw huge amounts of money at the fattest of the fatcats.

Remember, Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.

Indeed, professor of law and economics (and chief S&L prosecutor) William Black notes that we’ve known of this dynamic for “hundreds of years”.  (Actually, the government has ignored several thousand years of economic wisdom.)

Heck of a job, guys …

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  • This is very interesting news as we witness the Fed unwind their monetary policy of buying bonds, etc. It was reported the other day Belgium has purchased a rather large amount of US Treasuries over the last few months. A lot is going on in the world, we can bet things are surly about to change soon and not for the better.

    • Mikki2051

      No one else wants them. Asians are all selling. The telling part is no one ever reports what they bought them with. Belgium is the size of metro NYC, heavily indebted, zero GDP growth, high unemployment, massively unfunded entitlement programs, negative trade balance. Don’t have a pot to pee in yet they can buy literally unlimited amounts of treasuries. Some Washington money laundering going on?

  • Carl_Herman

    Outstanding, GW; thank you.

    So as our tragic-comedy continues, what/where is our endgame? Readers: unless you have a better plan perhaps you should participate with the 2014 Worldwide Wave of Action.

    Unless somehow we change course, it’s “money in the bank” sure we’ll have more lies and crimes from our lawless oligarchs.

  • The same Sheila Bair is now on the board of Banco Santander, which failed the stress test.

  • Sheila Bair not only saved the banking system, she gave Carlyle Group, Blackstone, WL Ross & Centerbridge one of
    their quickest and most profitable financial investments, BankUnited.