My news feed tells me that stocks are up on the good news from the stress tests. I'm not sure why. It's long been obvious that the stress tests are like those kindergarten field days where everyone gets a prize for participating.
The banks will be fine if the economy is fine, says Treasury. (And the economy will be fine if the banks are fine!) But then there are all those haunting passages in the Monetary History of the United States where they talking about how swimmingly everything was going in 1931 . . . right up to the point where the Second Banking Crisis, suddenly and for no apparent reason, appeared.
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A sucker born every second...
So because things are fine we should be worried. Is that a bad sign? Should we hope things are worse because that would be better? Should we wear our hats on our feet? I know we aren't out of the woods yet but good news is better than bad news. Take it with a grain of salt maybe, but it sure beats the alternative.
The tests were designed so that banks would pass them. The fact that they 'passed' does not mean that things are fine.
This is just a rumor I am starting, but banks are passing out free bumper stickers that say "My Bank is an Honor Student at the Federal Reserve".
"My news feed tells me that stocks are up on the good news from the stress tests."
Hmmm...I don't do MBA lingo so much but can you splain this?:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a30_PNxnxsZg&refer=home
Ian is correct. The entire charade is to build confidence in the system, regardless of whether or not the confidence is justified. We will just have to wait the passage of time to reveal the truth.
No, Yancey. We should be confident now -- as long as the bank in question is one that is "too big to fail."
Because the taxpayer will cover the loss, lending money as necessary to move the non-performing loans from bank books and into some risk-free fund managed by an MBA who never sleeps.
I'm trying to figure out how to stuff my stock portfolio with garlic.
I think Bernanke and Geithner advocated legislation necessary to take over the large bank that has too low a capital ratio, a government organized bankruptcy proceeding. John Auther had a nice column on this general idea in the FT and how we were avoiding the 'n-word,' nationalization. The current supported bidding plan of Geithner for toxic assets is unfortunate in my view. An analogy would be like somebody selling their furniture in having to move. I don't see the equivalent moral justification for their not being a Fed support of that sale; say loaning the purchasers 50% of the money for purchase of a used couch? The secondary problem with Geithner's plan is the loss of boundaries between public and private. The 'Tony Rezko Obama didn't know' didn't just buy the split property that allowed Obama to have his Chicago mansion out of the goodness of his heart.
How do you know Megan?
what evidence do you have that we're near a possible second banking crisis a la 1931? What analysis do you have to share with us?
I heard another sage on CNN saying, paraphrasing here, gee, if the big banks can withstand 11.5% unemployment and associated losses, who can say tehy cannot withstand 20% unemployment?
I ask you here, should banks hold capital against 20% unemployment?
What if, when you went to apply for a loan, the lender charged you a mortgage rate based on Great Depression style losses (rather than the current ridiculously subsidized rates) It is not that you'd pay more in interest (you would of course), most people would simply not get loans, since the bank would have to hoard capital (gotta be ready for the great Depression you know!)
Should insurance companies charge rates based on 500 year floods or the Chicago Fire? I know people sound more psuedo-sophisticated when they pooh-pooh the stress tests and posture "don't we all know the banks are insolvent". Are they really? I look at banks pretty carefully, have been in the game for some time, and would doubt that a single of the 19 banks should actually be closed down. I can't say the same about automakers or airlines.
The "stress test" may be entirely a political ploy, but it is not necessarily a sign of intelligence to take the other side of the arguement and posit that all the banks are really in bad shape.