No Transparency In "Stress Test"

[girl gone mad]

http://globaleconomicanalysis.blogspot.com/

The New York times is discussing a "stress test" for banks in Bank Test May Expand U.S. Regulators’ Role. Three things stand out.

1. A massive audit of the 18 largest banks is underway.
2. There is no transparency in the audit.
3. There are no details on the alleged "stress test". Moreover, an audit can hardly be construed to be a stress test.

There is no transparency and there are no details. Is this supposed to inspire confidence?


From the New York Times:

Details are scant. But exams for 18 or so of the biggest banks are set to begin immediately, and the first results could arrive within weeks. They are not expected to be made public for every institution. Regulators were also discussing whether to apply the stress test to small and midsize banks, according to an administration official.

The new test is likely to be more stringent than the standards used to determine which banks would receive money under the first round of the federal rescue. And unlike in the government’s initial investments, the amount of capital that banks receive will be based on the depth of their problems.

Analysts said the program hints at a creeping nationalization of the banking industry. “There is no way you can survive the failure of the stress test without having the government inject large amounts of taxpayer money,” said Jaret Seiberg, a policy analyst at the Stanford Group in Washington. “That means the government will own a majority of the bank.”

According to a government official close to the situation, regulators will continue to require that banks maintain a minimum 6 percent Tier 1 capital ratio, a common measure of financial health. Regulators are also expected to insist that at least half of that figure, or 3 percent, come from common stock.

As part of the new program, firms that receive new preferred equity investments from the government can convert them into common shares. Senior administration officials are also considering allowing the Treasury’s original investments under the Troubled Asset Relief Program, or TARP, to be converted into common equity, but no final decision has been made.

[Veritas_et_Aequitas]

1. That's not that surprising.

I'm sure if actual, transparent analyses were done on the various banks that wish to receive TARP funds, we'd find out that about a third of them (at least) are dead or dying. And we can't let the market run its course on these organizations because they're "too big to fail". Frankly, if something's too big to fail, it's too big to exist.

[DJ13]

2. Our government is too interested in keeping the crooks in charge

...to allow an honest, transparent audit to take place.

Their insistence that the investors (and by extension, the executives) of the large banks must be protected is the real threat to our economy, as without it the banks would already be nationalized and all the fraudulent financial instruments would have long ago been written off.

But that might hurt the wealthy investors who are stuck holding bank stocks or bonds, so the government will hurt countless millions of Americans who will lose their jobs and homes in attempting to protect those "innocent" rich people.

[The Brethren]

4. And the ugly cycle continues.

[glitch]

3. There is a very real possibility transparency wouldn't inspire confidence.

Everyone would know for sure the banks were rotten, rather than at this point just strongly suspecting it. The only thing that will maybe restore confidence in our system is at least a temporary nationalization, followed by absolute transparency with a major effort to prove the rot is in fact being cleaned out.