The FED performed its annual stress test (required by the Dodd-Frank law) on 15 19 banks and 4 of the banks failed the test. These 4 banks are Citigroup, SunTrust, Ally Financial, and MetLife. The FED stress tests suggest that those banks would not have satisfactory capital buffers if they were to suffer a financial shock. The numbers (Tier 1 common capital ratios):

• Cigitroup: 4.9%
• Ally Financial: 4.4%
• SunTrust Bank: 4.8%
• MetLife: 6%

Citigroup performed the worst in this test. CEO Vikram Pandit is sure to be all stressed out over it, poor guy.

Still, most other banks passed the test, which helped the market (which seems to be made of teflon these days. We’re sure that will last…)

For more, go to: Bloomberg and CNBC

A funny thing happened on the Illinois statehouse floor – Republican Senator Christine Radgono quoted some Wu-Tang financial advice – specifically, advice from the always trustworthy rapper Raekwon. Here’s the vid:

Some of you may know that last night, Raekwon from the Wu-Tang Clan was in town
And I got some financial advice from him which I would like to share with all of you, because it does seem quite relevant:

“The most precious thing in the world is the financial security and well being of your family
You want to send your little ones to the best school, and in the end, you want to know you left them with peace of mind
nowadays we all know that cash rules everything around us
Cream. Get the money! Dollar dollar bill, y’all!”

This quote is from the hilarious skit from the Dave Chapelle show, where Wu-Tang Financial helps families to “diversify their bonds”, among other things:

In case you were wondering, the Wu-Tang song title C.R.E.A.M. is short for “Cash Rules Everything Around Me”

Remember: Christine Radgono ain’t no-one to f*** wit!

If Republicans are upset that Obama invites rapper Common to the White House, what will they say about a Republican Senator quoting Wu-Tang? Nothing, that’s what.

Remember: C.R.E.A.M.

It would be better if it were Warren G calling for Elizabeth Warren to regulate (or is that too many Warrens?), but we’re still amused that a group called the Main Street Brigade has produced a hip-hop video calling for her nomination as director of the Bureau of Consumer Financial Protection:

The Main Street Brigade doesn’t provide much information about itself on its website, though it appears to align closely with consumer and liberal groups that have pushed for tougher regulation of Wall Street. The group describes itself as “a rapid response team, nationwide, that can be activated to protect our communities” from “devastation” by the banking industry.

MSB guys – c’mon, how are we not on your PR list?

Tyler Durden (if that’s his real name) over at Zero Hedge brings us, as he so often does, a light-hearted and amusing look at the hilarity of the market. Or, specifically, how every major firm has their own Skynet and are each trying to out-Skynet everyone else, illegally. Awesome.

Recently we posted a required reading analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity, around the time of the May 6 flash crash. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific “shapes” as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other algos interpret as bid interest and pull all offers progressively or step function higher (or vice versa, although we have rarely if ever seen the walking down of a stock over the past 18 months).

In English, quote stuffing is a way for an HFT program to try to gain an edge of a few microseconds over the other programs by presenting a made-up quote that other HFT apps will have to process but that it knows it can ignore, because it put the fake quote out there. While the other programs are busy processing that quote, the originating algo can be trading something else before anyone else has a chance. This would be irritating enough if only one firm was doing this, and it’s downright mean because everyone is doing it. Is doing it? Yes, is doing it, in the present tense.

Today, courtesy of Nanex we demonstrate that this type of illegal stock manipulation continues rampant to this very day, and the SEC still fails acknowledge that it is precisely the HFT market participants that persist in destabilizing stock prices, which have given up responding to fundamentals and merely move up or down based on quote stuffing interventions by those who plead innocence and claim to only be providing liquidity. (emphasis theirs)

We’re not sure exactly why the SEC hasn’t done anything about this. There are literally colorful pictures that show what’s been going on. Even if no one at the SEC can read (which is certainly possible), these amazing technicolor dream charts show that quote stuffing is certainly going on, and that every effort is being made to influence the NBBO (national best bid and offer, basically, the lowest buy price available and the highest sell price available – if you’re a regular joe on the market, it’s the only prices you’ll see). ZH says it best:

So while the SEC continues to pander merely to the interests of the market manipulation lobby, and is now doing it in more style than ever by refusing to answer to FOIA requests going forward, here is Nanex with yet more evidence that we no longer have a market, but merely a daily recurring crime scene.

Head over to ZH and check out the charts. Even if you don’t know what you’re looking at, you can pretty easily figure out what you’re looking at.

So just this morning that financial reform thingy got its last Congressional vote before becoming law, and assuming our dear president doesn’t have a last-second case of teh veto lulz, it’ll be officially signed into law sometime next week because why rush things.

We haven’t said much about the bill lately for a number of reasons, such as epic computer failure, knowing the bill would change one thousand times before it was finalized, and utter sloth. Mostly the last one. But now that it’s done, we’re prepared to give a thorough and objective analysis of what the bill contains, doesn’t contain, and what will happen to the financial industry over the next fifty years as a result.

Ha ha, no, just kidding, that’s not what we do at all. Anyway, it’s hard to find honest answers to any of those questions, because the bill itself is around 2,300 pages long (almost as long as the last Stephen King novel), doesn’t have any pictures, and doesn’t follow a three-act narrative. However, I’m told that at least 1,200 of those pages is nothing but ALL WORK AND NO PLAY MAKES BARACK A DULL BOY just to see if he notices before signing it.

We don’t really even know if it’s going to work or not. And that’s not just me saying that, one of the guys who literally wrote the bill said that.

“We won’t know the full results of what we have done until the very institutions we have created, the regulations we have suggested and provided for are actually tested,” Mr. Dodd said in a floor speech. “We can’t legislate wisdom or passion. We can’t legislate competency. All we can do is create the structures and hope that good people will be appointed who will attract other good people — people who will make careers and listen and see to it that never again do we go through what we have gone through.”

It frightens us terribly that the success of Senator Pollyanna’s bill hinges on his hope that good people will be appointed to steer banks.

What do we know about it? That all depends on whom you ask. It either doesn’t go far enough (Russ Feingold) or is the most egregiously overreaching piece of intrusive legislation since the last one (Richard Shelby). It places too much power in the hands of the Fed (Everyone) or is completely and utterly awesome (Ben Bernanke). Overall, the only consensus you’re likely to find is “Meh,” even from the people who authored the stupid thing.

Speaking of the Fed, they’re getting audited one time, which is pretty okay but unless the audit reveals they’re still sitting on a stack of September 2013 Crystal Pepsi futures, I can’t see myself getting terribly excited about it. Mr. Audit-Teh-Fed himself, Ron Paul, isn’t exactly pleased with the result, since it’s a one-time audit instead of an annual sextravaganza. Not that the Fed’s balance sheet ruined the economy, though.

Even Paul Volcker is sort of apathetic about the whole affair, after his so-called Volcker Rule wound up in the final bill more watered-down than an Applebee’s martini. The rule went from banning prop trading outright to limiting it to “only” 3% of each bank’s Tier 1 capital. You think, hey, 3% isn’t all that much, but 3% of $100b is a whole lot. It’s so much that, except for $GS, no one’s going to have to make a single change to their prop trading divisions – and Goldman could just decide they don’t want to be a bank holding company anymore anyway, to avoid the limit. But prop trading didn’t cause this, either.

Given that it seems to do little to address the root weaknesses that allowed the crisis to happen, who, then, actually is happy with the existing bill? Alyx and I are, because it ensures that we’re going to have massive fails to write about for many years to come.