Stress Tests:  A   P.R. Stunt Devised by the Banking Industry → Washingtons Blog
Stress Tests:  A   P.R. Stunt Devised by the Banking Industry - Washingtons Blog

Saturday, May 2, 2009

Stress Tests:  A   P.R. Stunt Devised by the Banking Industry










Stressed Out



As the New York Times pointed out in February:




There was no verification of underlying accounting and loan books, not even a teeny bit of sampling.
These were the same models which got the banks into the financial mess in the first place.

And now, the banks are negotiating the stress test results with Treasury.

Virtually all of the independent banking experts say the stress tests are a hoax.

  • PhD economist Nouriel Roubini said that the stress tests used scenarios more optimistic than what the economy is actually experiencing, saying:
    Stress Testing the Stress Test Scenarios: Actual Macro Data Are Already Worse than the More Adverse Scenario for 2009 in the Stress Tests. So the Stress Tests Fail the Basic Criterion of Reality Check Even Before They Are Concluded...

  • Paul Krugman said that the stress tests are merely a "self-esteem class" for the banks
  • Former senior S&L regulator William Black previously called the stress tests a sham and a hoax
  • Indeed, the Federal Reserve itself has more or less admitted that the stress tests do not really measure solvency, saying:

See also this and this.

Just like with the nuclear power analogy, the banks and good old boy Geithner cooked up the stress tests themselves, used their same old models in order to hide the fact that they are actually insolvent (and their insolvency threatens the entire economy, but they are doing everything they can to hide that from the public, and instead to "reassure" the public).

Once it became clear that even the worst-case scenario under the stress tests was much milder than actual conditions, Geithner and company didn't insist anyone change the inputs to the models, but just promised without detail that he would "get tougher" with the banks.

And just like the nuclear power analogy, the banks are now arguing about the cooked-up results, trying to avoid doing anything that would meaningfully reduce the actual risk to the economy.


  1. That is screwed up using a fictional Nuclear Power Plant story to compare it to the Financial mess we are in. Was the author trying to subconsciously make people think that nuclear power plants are bad? Yes, I know the story is really about the financial problems, but alot of people don't like Nuke plants even though they are safe. Also, this new Administration doesn't really like Nuke plants. So, I wonder if this is suppose to put a subconscious mind frame that Nuke plants are bad disguised with the Financial problems that is going on.

  2. Anonymous,

    No, this is not trying to impugn nuclear power. I thought about putting a disclaimer to that effect, but decided the post was long enough already.

    Personally, I believe that nuclear power used to be very dangerous. But a new generation of lower-temperature reactors could be safer.

    I don't know enough about this new type of reactor to come out and endorse it. But I do know that the safety or danger of fusion needs to be analyzed in terms of TODAY's technology.

  3. George;

    I think your analogy is very apropos. Our financial system owns the government and is much more destructive to the American people then some technologies of power (electric that is) creation.






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