Worthless Stress Standards For Banks

The regulators are at it again, in attempting to bulk up bank capital in the event of future financial meltdowns.

How important are these so-called stress tests for banks anyway? Much of what comes from the regulators in Washington can be taken with a grain of salt after the politics are removed. Particularly with passage of last year’s Dodd-Frank Act.

Stress tests are actually a combination of individual financial evaluations. They can entail bank loss estimates, measured as percentages of holdings on first-lien mortgages, and second-lien mortgages, or credit cards, or commercial real estate loans. Estimated bank earnings are considered.

Added to the hodgepodge of risk percentages is the reserve status of each bank. The level of what is referred to as Tier 1 capital is important.

To complicate matters more, some unrealized losses on assets could become losses in the future, so the Tier 1 weightings may have to be adjusted. Obviously, stress tests are not fixed so their results can give varying interpretations.

That is the basic fallacy behind stress test talk, or regulation upon regulation imposition from Washington. It is too much about subjective, theoretical nothingness.

And it is the reason why the administration is running what was a minor recession into a major depression. Bank assets were “marked to market” daily when asset values were hard to determine, during what I refer to as the Great Financial Meltdown. ( See the Earl J. Weinreb NewsHole® comments.)

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The Random Matrix Theory

The Random Matrix Theory has come into the recent financial news.

This is the fancy term for an application of mathematical science used for securities evaluation. I have discussed it in past blogs with regard to how different types of securities act in various markets; how they are “correlated.” Or how different stocks within the S&P 500 relate.

The idea is to improve an investment portfolio’s risk management.

In general, practical terms, and to give a simple example, when stocks go down, bonds were usually supposed to go up. This supposedly mitigated market risk. Or when domestic stocks drop, overseas stocks rise. Or the opposite.

Of course, this doesn’t always happen. Both sectors in each instance can go down or up at the same time. The subject is complicated. ( See the Earl J. Weinreb NewsHole® comments.)

College Should Teach Everyone Basic Economics

It seems, the more college students we have, the less knowledge the American public has about basics. Take fundamental economics.

College does not appear to educate its students to the dangers from politicians in office, and ensuing problems that will engulf them when the students leave school.

The media never adequately take up that educational function.

If youth were truly aware of the effects of the monetary inflation we are setting up for them and future generations, they would be up in arms at the government, to stop the economic mess.

Budget-busting spending at all government levels will have dire consequences for the present and coming American job future.

The Rising Money Supply

The average increase in our monetary base has risen about 5% since 1961. For the supposed Y2K emergency and the 9/11 catastrophe, it rose 10%.

These days the increase is well over 100% and rapidly rising. Yet, we listen to Obama administration and Federal Reserve officials who keep telling us all this will be taken care of.

The U. S. Treasury issues bonds to pay for its debts but those bonds will not easily be refunded. Also, there is little likelihood the economy will expand to soak up any of that paper the government is printing through the Federal Reserve system. Inflation will show up sharply as soon as the economy starts to fully recover. ( See the Earl J. Weinreb NewsHole® comments.)

Using Oil Reserve to Temporarily Cut Prices

The oil reserve we have is expressly for emergencies, and never should be used to countervail price movements. That’s because tapping it is useless in combating the OPEC monopoly which can adjust its supply to demand whenever it desires.

The best way for America to cut oil prices is to use its oil and related energy supplies.

But its leftist energy political influences prevent this. For political reasons and the fact that leftists have little knowledge of how the economic laws of supply and demand work.

Chinese and Indian Gold

Gold jewelry bars and coin ownership have lots to do with gold commodity pricing. As opposed to the influence of gold investors and traders who have no interest in the metal in the form of jewelry.

This preference varies by country. It’s been conventionally very high in China and in India. In the U,S, it’s use its use is primarily when the inflation risk is high, but primarily when the dollar’s value becomes risky as a reserve currency.

The value of gold can go higher if the Chinese government begins to think more like Americans running from the weak dollar. But right now, .that still may not be likely.

State 529 College-Savings Plans

State 529 college-savings plans vary; not all states issue them.

Plans differ, depending on the options available in each state. As you know, I like only low cost index funds as investments, So your choice ought to be made on any overall, net advantages your state plan may give you.

Another consideration should be the advantage or disadvantage for a student when seeking a scholarship, in having a 529. Is its tax benefit worth having, in view of the scholarship determination by the school, despite any investment benefits you may get?

Incidentally, some states offer lotteries to bolster 529 use. Such merchandising makes the program suspicious.