Obama’s Bank Grab is ON!

As predicted by this Blog, as a result of heretofore unheard of “stress tests” described as “asinine” by super-banker and Wells Fargo Chairman Richard Kovacevich and “unnecessary” by Obama-lover Warren Buffet, sources at the Federal Reserve have made it known that Bank of America, Citigroup, Wells Fargo, and GMAC (among others) will have about a month to develop plans to increase their capital reserves. BoA appears to have the highest hurdle to overcome, in the neighborhood of $34 Billion dollars.

What is part of a disturbing trend, as it became clear that the Federal Reserve “stress tests” back in April would reveal that the banks were actually recovering, liquid, solvent, and in reasonably good shape, the Fed moved the standard on the stress tests so more banks would face a takeover by the US Government. For instance, the tangible common equity target was raised by 33% to snare Morgan Stanley, among 4 other banks that initially passed the stress test.

And if the banks are forced to convert the government-held preferred shares into common stock, the US Government does not intend to be a passive “investor”.

On May 5, Fed Chairman Ben S. Bernanke said that it will take steps to oversee the “effective” management of banks. Later, White House mouthpiece Robert Gibbs said Obama would sack bank management just as he forced the resignation of GM Chairman Rick Wagoner.

God help these banks and their management. Hopefully there is enough sidelined private investment capital out there to keep the government out of an ownership position.

My prediction, when these banks reach out to foreign sovereign investment funds for a a non-FDIC guaranteed cash infusion, the Fed and Obama will object to the foreign takeover of US banks, and block the deal, thus insuring that the affected banks will be socialized.

Obama and the Fed are quick to point out the stock conversion will be a quick way out of the stress test. What they have not said is precisely how the government will get OUT of the ownership position. That is because they NEVER want the government out of the bank ownership business. Ownership is control, ownership is power, and governments NEVER give up power without a fight.

UPDATE: I have paid off my Bank of America - issued credit card and asked them to lower my spending limit. Every little bit will help BoA. I'm trying to do my part.