by James Corbett, The International Forecaster:
It’s official, folks: You don’t have to worry about a financial crisis ever again! I mean, your children might, but you are in the clear!
How do I know this? Why, the Emperess of the Economy herself, the venerable Janet Yellen, chair of the High and Mighty Federal Reserve Board of Governors has dribbled this gem of wisdom from the heights of Mount Olympus onto our lowly heads:
“Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”
Thus spake Yellethustra.
So now with that out of the way, it’s time to party like it’s 1999! You know, the height of the dotcom bubble when everyone and their pet monkey was raking in the IPO dough and newly-minted NASDAQ millionaires were lighting their cigars with hundred dollar bills. And we all remember how well that party ended, don’t we?
Well, this time it’ll be different. I mean, this is Old Yellen we’re talking about! If we can’t trust her, who can we trust?
This exciting pronouncement from the Mistress of the Markets follows last week’s announcement of the results from the Fed’s latest “stress tests” of the banking sector. Each year since 2009, the Fed has subjected the ledgers of the nation’s largest bank holding companies to supervised testing to see if they could remain capitalized in the event of a financial crisis. This year, for the first year ever, all 34 holding companies received a clean bill of health. They survived even the worst scenario that the Fed could throw at them!
The happy news is not merely a morale booster for the markets; it confers important real-world rewards on the banking sector. Specifically, for the first time since the stress testing began, all of the banks under review have been granted free rein to buy back stock or pay dividends to shareholders. JPMorgan took advantage of the opportunity to initiate a $19.4 billion stock buyback, its largest since the 2008 crisis, and Citibank followed suit with a $15.6 billion buyback (its largest ever) and a doubling of its quarterly dividends. The immediate result: banking stocks are up across the board.
You see? Yellen is right! The banks’ future is so bright, they gotta wear shades! And you know what they say: What’s good for Wall Street is good for Main Street! (Except when it isn’t, but why get hung up on those pesky details?)
Oh, sure, there are the naysayers. People like Lance Roberts who point out the slew of faulty assumptions that the Fed uses in their phony stress tests to make sure the banks come out of the ordeal smelling like roses:
FASB Rule 157 is still repealed allowing banks to mythically mark bad assets to “face value” which makes balance sheets stronger than they appear. So, how do you know what “toxic assets” still exist?
There is roughly $2 Trillion of excess reserves supporting banks which will evaporate IF the Fed actually commences with shrinking their bloated balance sheet.
The worst case scenario only accounted for a “doubling” of the unemployment rate, or 8.6% from current levels, despite the fact we have an exceptionally low labor force participation rate and a surge to more than 10% is quite likely in the next recession.
With more leverage in the system than at any point [in] history, and banks inextricably linked to the financial markets, just how sensitive are the tests to another “worst case scenario?”
But why listen to the nattering nabobs of negativity out in the blogosphere with their endless litany of facts and details when we have the pronouncements of the Oracle in Washington herself to base our judgement on?
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