Green Options

Economist, James Galbraith, on bank stress tests

The results of bank stress tests released this week, do not bear good news. The bottom line is that at  total of $75 billion needs to be raised from 10 major banks to prop them up for losses that could come from a deepening recession.

Here is a Top 4 summary of who needs what in the next six months:

• Bank of America (BAC) will have to raise $33.9 billion;
• Wells Fargo (WFC), $13.7 billion;
• GMAC (GJM), $11.5 billion; and
• Citigroup (C), $5.5 billion

The question people are asking is whether this is the worst news yet? Or whether it is news that the worst is over?

There is no easy answer. The truth is that if unemployment continues to rise, housing prices continue to fall and the economy continues to shrink, then much more money might be needed as problem bank loans could be on the rise.

As ‘nationalization’ appears to be the U.S. government’s answer to saving the banking industry, the banks themselves are doing all that they can to boost shareholder confidence.

The latest news from Citibank is that they have approached the US government to agree on a new capital injection that would increase their stake in the troubled bank to about 40 per cent but prevent an outright nationalization.

The world of credit might not be dead just yet but it has certainly become less appealing.

Rainforest Action Network has declared yesterday and today, November 15th, as national days of protest against Citibank and Bank of America for their consistent support of the coal industry and its impact on global warming.