America’s Perfect Storm of Obama’s Making

Hedge Funds The Last Banking Balloon to Pop

Whether the government lets big banks fail or not, the impact on the economy is similar: A massive contraction of bank loans and credit, sabotaging attempts to revive credit flows and stimulate the economy.

Reason: These banks must build capital quickly, and the only realistic way to do so is by cutting back on their lending.

Official stress test results released Thursday on 19 U.S. banks indicated that they’ll need $75 billion. $11.6 trillion in assets held by these institutions, those risking failure and will fail if the economy worsens, represent $6.56 trillion, or 56.5 percent, of the assets; while borderline institutions hold $4 trillion, or 34.7 percent of the assets.

At Risk of Failure:
JPMorgan Chase & Co., Citigroup, Wells Fargo & Co., Goldman Sachs Group, GMAC LLC, SunTrust Banks, Inc., and Fifth Third Bancorp.

Will Fail if Economy Worsens:
Bank of America, Morgan Stanley, PNC Financial Services Group, US Bancorp, BB&T Corp., Regions Financial Corp., American Express Co., and Keycorp

Adequately Capitalized but Cautious:
MetLife, Bank of NY Mellon Corp., Capital One Financial Corp., and State Street Corp. – appear to have adequate capital to withstand worsening conditions.

Note: The government assumes that the GDP will contract no more than 3.3 percent this year. While, GDP is currently contracting at an annual rate of 6.1 percent.  Also, unemployment is at 8.9 percent and on the rise it has just slowed its rate of increase last month.

Systemic risk from highly leveraged instruments like derivatives could default on their trades setting off a series of failures affecting banks that hold the largest share of derivatives. Failing derivatives triggered the collapse of Bear Sterns, Lehman Brothers, and the $180 billion bailout of America’s too big to fail, AIG. This systemic risk is the same that caused former Treasury Secretary Paulson demanded Congress authorize $700 billion in bailout funds for the banking industry or it would fail.

Stress tests have failed to evaluate the credit exposure of each bank to defaults by their trading partners. There are currently $1.25 quadrillion in derivatives now in the market YES QUADRILLION!

JPM has 43.6 percent of all the derivatives held by all U.S. commercial banks and has 52.8 percent of the total of credit default swaps held by all U.S. commercial banks, double the total held by BofA and Citi

Systemic risk from trading in the derivatives market and the concern for the bottom dropping out of the market is what caused the credit freeze seven months ago.

The stress tests were a banks self-evaluation based upon criterion provided by the FED and Treasury but unaudited just estimates that could and were appealed and negotiated for more favorable results through Secretary Geithner, who was afraid to release bad economic information due to the risk of a loss in public confidence and to save face for the Administration.

The government estimates these institutions could suffer $600 billion in additional losses over the next two years.

This is no sign of recovery, but the last financial balloon to pop that causes the perfect storm to implode upon this now debt riddled economy that cannot survive another blow.

One example of an existing problem is that Israel and Iran are preparing for war.  Iran just put a missile defense system in place aimed at Israel.  Russia is now parading its troops around red square in a show of force but why now?  It has a treaty with Iran and is prepared to come to its aid in the event of war.  China is now pushing its new navy fleet and encountering US ships with its new sea worthy authority prepared to protect its shores and its newly acquired interests of natural resources in the region.

A severe catastrophe is building, America is economically severely weakened, its new massive debt of congress and Comrade President Obama cannot possibly initiate a sustained recovery but will be the last straw on the camel’s back that will be too much weight and cause it to fall into depression while war wages and gas prices go out of sight.

Obama is still blaming Bush in prime time, reveling in his new found stardom his ratings are on the rise as he nationalizes more sectors of the economy and taxes away business incentive to succeed from his bully pulpit of White House press corps who will do his bidding and destroy any dissent against his oppressive policies.

The wake up call is coming and America will be looking to its Marxist-fascist leader Obama for international guidance in the face of war in the middle east.

This will cut into his yucking it up time on Letterman, and the thievery of private coffers in the face of a perfect storm.

His liberal progressive lap dogs will be looking to him for the answers and he will sound good but have no substance as he has shown he is a weak leader willing to back down in the face of adversity and bow to those who know how to wield real power.