Tests of Banks May Bring Hope More Than Fear

Source: NY Times

The results of the bank stress tests to be released by the Obama administration this week are expected to include more detailed information about individual banks — assessing specific parts of their loan portfolios — than many analysts have been expecting.

Using these results, the administration seems prepared to argue that, while a few banks may need additional money, the broad financial system is healthier than many investors fear.

At the core of the test will be a judgment about whether each of the country’s 19 biggest banks has enough money to withstand a deep recession and, if not, how much more capital it needs to be able to lend at a healthy pace, according to regulators. Unless regulators change course this week, the tests are also likely to forecast potential losses in individual slices of the credit markets, like residential mortgages, credit card loans and commercial loans, for each bank over the next two years.

The administration is expected to make the case that the needs of the troubled banks can be met with the bailout funds that Congress has already approved. That would be a departure from what administration officials were saying as recently as March and evidently reflects the recent improvement in banks’ conditions.


Read more: http://www.nytimes.com/2009/05/04/us/politics/04stress.html?hp

The "worst case" assumption in the test was a 3.3% contraction in GDP for 2009. But the first quarter figure showed a 6.1% contraction. To end up with a mere 3.3% contraction for the year at this point would require an immediate reversal of this plus growth in the fourth quarter. That obviously isn't going to happen.

Another "worst case" assumption for the test was an unemployment rate of 8.9% in 2009. The government's own cooked U-3 numbers are already at 8.7% with over 20,000 more unemployed every day. (The BLS's own U-6 is over 15% and the more accurate pre-clinton figure for unemployment is now almost 20%.)

In other words, this stress test has no real meaning other than to try to prop up a failed economic policy with more lies.

Not that I know that much about this, but didn't they also just recently change accounting methods for how assets are valued by modifying the mark to market rule? If so that would be another way to put lipstick on the pigs.