I RECENTLY complained to another economist about the vagueness of the plans to restore the financial sector coming out of the Treasury. All this dithering over nationalisation, good banks/bad banks, formation of new banks, and so on, is wearing thin. Each plan has its merits, enormous potential downsides (can the government honestly even manage a behemoth of a bank like Citi with everything else on its plate?), and the ultimate decision should not be hastily implemented. But all the indecision and uncertainty just wreaks havoc on the markets. At this stage, I joked, I’d be just as happy with them simply saying, "We have a strategy, we will continue to inject capital to prop up zombie banks indefinitely. That’s pretty much the whole plan and we’re counting on it bringing the financial sector back to life someday, somehow.".
True that! comment from the same blog:
Doug Pascover wrote:
The stress test is kind of funny to me. How about "Is the bank solvent right now?" May want to start there.
And from Naked Capitalism:
We have been skeptical that the pending Treasury stress tests on banks, designed to ascertain their state of health, were inadequately staffed and therefore could not do the job properly. Our big concerns were that they had too few bodies to test financial data versus underlying documentation adequately (usually done on a sampling basis) and they lacked the expertise (and perhaps the mandate) to vet risk models (which we all know have performed impeccably over the last two years.
Is it a test if the results are pre-determined? Apparently Team Obama thinks so.
From CNBC (hat tip reader Early Withdrawal):
And from Naked Capitalism:
We have been skeptical that the pending Treasury stress tests on banks, designed to ascertain their state of health, were inadequately staffed and therefore could not do the job properly. Our big concerns were that they had too few bodies to test financial data versus underlying documentation adequately (usually done on a sampling basis) and they lacked the expertise (and perhaps the mandate) to vet risk models (which we all know have performed impeccably over the last two years.
Is it a test if the results are pre-determined? Apparently Team Obama thinks so.
From CNBC (hat tip reader Early Withdrawal):
Said one high-level official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”
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