Bottom Wall Street is still a big risk

⊙ Wu Qing ⊙ Wu Qing The banking crisis has changed the relationship between regulators and big banks. Both use a stress-deficient test to whitewash and boost investor confidence. This helps big banks get more capital at a faster rate and at a lower cost. Yet 74.6 billion dollars is not enough to save Wall Street, and Wall Street is bound to need the next financing.　　The risks of copying Wall Street are still great. 1, 74.6 billion dollars is not enough to save Wall Street. In the just-concluded stress test, the Fed designed a benchmark scenario and a "worse" scenario. The benchmark scenario assumes a 2% decline in the U.S. economy in 2009, a 2.1% increase in 2010, a two-year domestic unemployment rate of 8.4% and 9% respectively, and lower housing prices by 14% and 4% respectively.　　In the "worse" scenario, the US economy is down 3.3% this year, 0.5% per cent next year; unemployment is 8.9% this year, 10.3% next year; house prices are down 22% this year and 7% next year. But the real picture is more stressful than the Fed's design. First, the International Monetary Fund (IMF) again lowered its forecast for the US economy in April this year. The U.S. economy is expected to decline 2.8% in 2009 and Zero in 2010. This has been similar to the so-called "worse" scenario. The current worsening recession in Europe will further weigh on America. Second, according to the statistics released by the United States Department of Labor Statistics, the domestic unemployment rate continued to rise from 4.8% in February 2008. The first four months of this year were 7.6%, 8.1%, 8.5% and 8.9%, predicting that future unemployment would be worse than the "worse" scenario. Third, from last September to the six months of February this year, the U.S. S & P Case-shiller 10 cities and 20 city house price indices fell by about 2% a month, a total of 11%, or an annualised rate of more than 23%. Market Personage joked: "The test past, the pressure is bigger." "So we can safely judge: the results of the stress test are whitewash." Even if a few big banks can successfully replenish 74.6 billion of billions of dollars in capital, they will not have enough capacity to cope with the gradual exposure.　　If big banks are to avoid failure, they will need to raise money next time. 2, the test results do not fully disclose negative information. It is good for big banks not to disclose negative information adequately. Big banks can get more capital at a faster rate, at a lower cost. The cases that have taken place are sufficient evidence. In September 2008, for example, Morgan Stanley sold 9.9% per cent to Mitsubishi UFJ, Japan, for $25.25 a share, to 3 billion dollars. In October, Morgan Stanley's share price fell below $10 trillion.　　If the two sides of the transaction are symmetrical, this transaction will not be reached. Now regulators are asking Morgan Stanley to replenish its capital by 1.8 billion dollars. Morgan Stanley has a heroic plan to finance 4 billion of billions of dollars: as long as the Mitsubishi UFJ group converts a portion of its 6 billion dollar convertible preferred shares into ordinary stocks. As for the conversion price, the two sides agreed last year for 31.25 dollars.　　Now Morgan Stanley's share price is 26 dollars. 3. The financial crisis allowed regulators to defend the interests of big banks. Regulators actually know the stress test scenario is not rigorous enough. The Fed's report, released on April 24, said the indicators in the underlying scenario were the average for a number of professional institutions ' forecasts for February, and that "worse" scenarios were "slightly weaker" than the underlying scenario that regulators designed.　　The Fed "has no intention of designing it as the worst scenario". Under normal circumstances, financial regulation in the United States is like a cat-and-mouse game. But whenever the banking crisis broke out, regulators immediately turned to protecting people and lender of last resort, and Tommy (cat) and Jerry (rat) immediately switched from rivals to partners.　　Bankers were politically criticized and financially benefited, both during the Great Depression of the 30 and during the Savings and Loan association crisis of the 80. The common goal of current US regulators and commercial banks is to allow large, insolvent banks to replenish their capital as soon as possible without nationalization. Adding capital to big banks requires a boost in market confidence, and a boost in confidence requires a market peace, even if the peace is a cosmetic one.　　The test of limited stress is one of the ways to whitewash. Now illiquid Wall Street (and European financial markets) are no longer able to finance big banks, and potential investors are mainly financial institutions and sovereign funds in the Middle East and Far East. China's financial institutions and sovereign funds have the goal and motivation to go out, is the potential of Wall Street to copy the bottom, but also constantly greet the other side of the Pacific financial lobbyists.　　But investing in Wall Street's big banks at today's prices is likely to suffer in the short term, even if it gains long-term benefits. (Author Unit: Finance Institute of Development Research Center of the State Council)