At 5:00 PM this afternoon, the bank “stress test” results were published.  From the looks of it, a number of banks need significant amounts of capital (originally posted at Calculated Risk):

Once you look past the fact that roughly $75B more is needed, one has to ask “what does this really mean?”

I’m afraid to say that the results may mean nothing.  Yes, $34B for Bank of America is a boat load.  Same goes for the $15B Wells Fargo and $11.5B for GMAC need, but what if the additional funding does not help in the long run?  I ask this question simply because there is significant doubt around the credibility of the stress test results.

The assumption the test is based on is that these 19 financial institutions could potentially face another $600B in losses under “the worst conditions” but what if it’s more?  What if there is another $1.2T in losses? Will the banks be able to turn to the private markets in order to raise capital, as Wells Fargo is already saying they will do?  Would the investment community continue to throw money down the hole, or would Uncle Sam need to act as backstop once again?

I still believe the worst is yet to come.

For months now, the Fed and the Treasury Secretaries (Paulsen and Geithner) have expressed confidence in the free market. Extreme market conditions call for unprecedented actions by the government, all in the name of propping up the U.S. financial system. What if, however, there is more at work?

Yesterday, the Fed refused to provide information on what financial institutions obtained money. The reasoning? Such information would potentially damage the reputations and/or create a lack of confidence in banks that obtained money.

Fed Refuses to Release Bank Lending Data, Insists on Secrecy

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

If you note, the same article points out:

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

What changed between September and now? Aside from the economic desperation increasing more than anyone could have expected, not much else. Auditors, economists and government officials all knew the financial institutions were facing insolvency. The financial markets were well aware then, as they are now, the banks were on the brink. As such, it is hard to make the argument that confidence in banking system would be tarnished by releasing information showing who received money.

The damage is done; the horse is out of the barn.

While reassuring to hear the Fed say transparency would be forthcoming, the reality is the Federal Reserve acts independently of Congress and the President. This body has the ability to do whatever they wish, without the need for government approval and have no duty to explain their actions to a governing body.

Maybe the lack of transparency comes from the Federal Reserve deciding who is going to survive the crisis? Maybe the Federal Reserve is taking advantage of the credit crisis in order to reshape the financial system after years of neglect.

I do not wish to sound paranoid, or some crackpot conspiracy theorist, but looking at the whole body of evidence it is clear the Federal Reserve, as well as the Treasury, is withholding information for some unknown reasons. Be it a lack of economic understanding, or something more calculated, it’s clear there is an undercurrent the general public is being left out of.

If the actions of the Federal Reserve are designed to select the survivors of the financial crisis, and not let the market direct such a decision, this would be a clear sign that the idea of capitalism as the world believed it to be was a failure.

Friday was witness to an alarming bit of news.  Ok, “bit” of news is not the way to put it, shocking is more like it.  533,000 jobs were lost in the month of November due to worsening economic conditions, significantly higher than the expected 400,000 positions.  

As if the news today wasn’t scary enough, one needs to look at the jobs lost last three months to understand the big picture on employment. 

(from bizzyblog.com)

Folks, that is roughly 1.3M lost jobs in three months.  At this point, it is understandable how 1 in 10 American homeowners with a mortgage are either at least a month behind on payments or in foreclosure and that unemployment went from 4.7 percent just one year ago to 6.5 percent this past fall.

The discussion about another great depression continues to circle the media.  Some say yes, some say no. While unemployment is currently nowhere near great depression levels, but remember that unemployment didn’t it 25% until roughly 1933 – almost 4 years after the market crash of 1929.  

It didn’t happen overnight then, and wouldn’t happen overnight now.  I fear another depression is in the on the way, or a hard rescession that of the early 70’s.  Eitherway, I still believe we haven’t even begin to see how bad things are going to get.

Unless your head was buried in a pile of cocaine, or sand, whatever works for you, you know that the Big three automakers are really hurting these days and that pain really hit the market last week.

As Congress attempted to provide financial aid to the automotive industry some startling financial information became public – Ford has roughly 38 billion dollars on hand, or about three years of funding, where as GM has about 20 Billion, or one year worth, and Chrysler has 11B in the bank but no true estimate on how fast they are burning cash (since they are no longer public they do not need to disclose their financial information).

Rumors of bankruptcy, automotive collapse and a massive waive of unemployment was all over the press. It seemed that GM and Chrysler were about to fall apart overnight. While the misfortunes of Detroit have been documented for some time the rapid unwinding of the credit markets only added to woes of the carmakers. One rumor that received very little press, but actually makes business sense, was that GM was an acquisition target of Chinese carmakers SAIC and Dongfeng.

Little does most of the general U.S. public know but GM owns 35% of the Chinese automotive market share is considered to be a luxury brand! Let me put that in different terms – GM is a successful company in China. As SAIC and Dongfeng are attempting to expand market share in China and the U.S., plus achieve significant economies of scale, an acquisition of GM by a Chinese company only make good business sense.

If a Chinese rival acquired GM, do you think the companies’ workforce would be welcoming of their new overloads? Do you think the pride of individuals who get in the way, or do you think they would be happy for the survival of the “American” giant?

While I have no answer, I find such a scenario to be the ultimate irony for the financial crisis facing the United States today.

The signs were all around but, apparently, no one was paying attention:

“In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders….

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring….

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

No one, except the New York Times.

You just have to love it….

“Madam Speaker, this is a huge cowpatty with a piece of marshmallow stuck in the middle of it, I’m not going to eat that cowpatty.” – Rep. Paul Broun, R-Ga.

After the failed vote on Monday, and the major decline with the stock market, the question on the minds of the general public seemed to be “What happens next”.  Well, it appears the next steps have been identified. Wednesday evening, at 7:30 PM, the Senate will vote on a version of the bill.

The next question the general public should be asking is what differentiates what is moving forward in the Senate from what was denied in the House. On first glance – nothing major.  The only thing that really sticks out is the request to raise FDIC insurance limits from $100,000 per account to $250,000 in an attempt to prevent any further runs on financial institutions.  

Let’s assume, for a moment, this will pass the Senate. Why are we to think this will pass the House? Nothing has changed; nothing is significantly different as of yet, so why will 12 more lawmakers vote in favor of passing the bill?

The question I have, if passed, is how are the people who formally voted no benefiting by voting yes?  That is really the question.

The question that continues to roll around my head is the one that no one seems to be addressing – where do we go from here?  

Go to the news website of your choice and do a little research.  See if you can find what the next steps are.  Will the bill be rewritten?  When does the house come back? What needs to change in order to pass the House?  If it passes the House how do we know the legislation will pass the Senate?  Where is the President?  Beyond him being “very disappointed” how is he working with the Congress move this forward.

Let’s forget the credit crisis and the impact the lack of liquidity will have for one second – what is killing the Market and economy now is uncertainty.  The longer direction is lacking, the longer the market is in the fog of uncertainty, major volatility can be expected which will only intensify the lack of credit available to the market.

Update

Bloomberg.com has the only “next step” I’ve been able to find.  The Senate will be back in on Thursday an may pass something and then send it back to the House.  

At this point even the politicians have no clue what is coming next and they admit it.

As of roughly 8:30AM central the House of Representatives began debate on the financial bailout. Roughly three hours of debate/discussion is to be had with a vote expect by noon central.

How are the markets responding? With a sharp drop at the open, the down seems to have found the bottom of the day around 10800.

Updates to come as the day moves forward.

UPDATE: 10:32 AM CENTRAL

Here is the draft of the Bailout, all 110 pages.

UPDATE: 11:05 AM CENTRAL

You can watch the House Debates at C-Span. A final vote is, indeed, expected at 12:30PM Eastern / 11:30 Central but may be later if the debates continue.

UPDATE: 11:15 AM CENTRAL

Just vote already! This is all fluff… Everyone saying how this was politics at it’s best, everyone thanking everyone else… Wait…

Ginny Brown-Waite, Republican Congresswoman, does not like this bill and does not look like she will vote in favor.

UPDATE: 11:17 AM CENTRAL

Congresswoman Marcie Kaptur, Democrate, is voicing her disapproval. She says go back to the drawing board, this is not the right bill.

UPDATE: 11:22 AM CENTRAL

Speaker of the House, Nancy Pelosi, is blaming President Bush for this financial crisis (Let’s ignore the poor lending practices).

Wow – thanks Nancy – I didn’t know that Fed Chairmen Ben Bernanke is a leading expert on the great depression.

The bill does not contain bankruptcy? I wonder what that means….Ah, she wants to help homeowners stay in their home if someone goes into bankruptcy.

UPDATE: 11:31 AM CENTRAL

The vote should be taking place but the debates continue…. Actually, Pelosi continues to slam the Bush administration, is thanking Barney Frank for all that he has done and is asking both sides to vote for the bill.

UPDATE: 11:48 AM CENTRAL

Debate still ongoing – there are a number of very unhappy Republicans suggesting that people vote no.

 MCCAIN SUSPENDS CAMPAIGN TO FOCUS ON ECONOMY; WANTS DEBATE DELAY

MCCAIN: America this week faces an historic crisis in our financial system. We must pass legislation to address this crisis. If we do not, credit will dry up, with devastating consequences for our economy. People will no longer be able to buy homes and their life savings will be at stake. Businesses will not have enough money to pay their employees. If we do not act, ever corner of our country will be impacted. We cannot allow this to happen.

Last Friday, I laid out my proposal and I have since discussed my priorities and concerns with the bill the Administration has put forward. Senator Obama has expressed his priorities and concerns.This morning, I met with a group of economic advisers to talk about the proposal on the table and the steps that we should take going forward.I have also spoken with members of Congress to hear their perspective.

It has become clear that no consensus has developed to support the Administration’ proposal. I do not believe that the plan on the table will pass as it currently stands, and we are running out of time.

Tomorrow morning, I will suspend my campaign and return to Washington after speaking at the Clinton Global Initiative. I have spoken to Senator Obama and informed him of my decision and have asked him to join me.

I am calling on the President to convene a meeting with the leadership from both houses of Congress, including Senator Obama and myself. It is time for both parties to come together to solve this problem.

We must meet as Americans, not as Democrats or Republicans, and we must meet until this crisis is resolved.I am directing my campaign to work with the Obama campaign and the commission on presidential debates to delay Friday night’s debate until we have taken action to address this crisis.

I am confident that before the markets open on Monday we can achieve consensus on legislation that will stabilize our financial markets, protect taxpayers and homeowners, and earn the confidence of the American people. All we must do to achieve this is temporarily set politics aside, and I am committed to doing so.

Following September 11th, our national leaders came together at a time of crisis. We must show that kind of patriotism now. Americans across our country lament the fact that partisan divisions in Washington have prevented us from addressing our national challenges. Now is our chance to come together to prove that Washington is once again capable of leading this country.
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Put the politics aside, come together as Americans and solve the problem. That is leadership.