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Too big to fail - 11/3/15

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The economy is at a strange place right now. Financial analysts and economists are continuously trying to gauge whether the U.S. is pulling away from the recession in 2008 or showing signs of a new one on the horizon.

One way to properly evaluate this issues is by looking at the “big banks” and making sure they are too sturdy to fail. Some key points:

  • America has 6 highly impactful banks - Goldman Sachs (GS), JP Morgan (JPM), Bank of New York Mellon (BNY), Morgan Stanley (MS) and State Street.
  • The Fed has highly regulated these banks and often gives them ‘stress tests’ to validate that they are able to handle another economic catastrophe without the assistance from other resources.
  • The Fed estimates that 2 of those 8 banks currently have enough capital to cover another catastrophe. Oddly enough the Fed will not release the names of the 2 banks to the public.
Why does this matter?
In 2008 when these banks were in troubled waters, taxpayers were the ones to pay for the mess. This was not well taken by hardworking taxpayers like you and I, and the Fed took note. Now, the Fed wants to make sure if this happens again the taxpayers won’t be on the hook to foot the enormous relief fund. Our belief is that even if the banks have the necessary capital cushion taxpayers will most likely still be impacted.
At the time of this commentary Michael Ojo, his family and/or clients of Golden Door Asset Management held no positions in the stocks mentioned above — although positions can change at any time.
Michael Ojo is the Managing Director of Golden Door Asset Management, LLC,a registered investment advisor specializing in individual and high net worth individual private wealth management. For more information on investing with Golden Door Asset Management, LLC please visit our website, www.goldendoorasset.com. Golden Door Asset Management, LLC is a New Jersey LLC, with its principal office located in Princeton, NJ.
Michael Ojo is also the publisher of CareStocks, a newsletter focusing in on healthcare services, medical equipment, technology and real estate stocks. More information to the newsletter can be found at www.carestocks.com.
© 2015 Golden Door Asset Management, LLC. All rights reserved.
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