"Stress tests" for banks was a wimpy excuse to give them more taxpayer dollars?

[kentuck]

http://www.huffingtonpost.com/2009/05/01/stress-tests-are-dangerou_n_195047.html

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"The fact that six banks failed the stress test is more indicative of the weakness of the banks than the strength of the stress test. Most analysts thought the stress test was pretty wimpy," said Henry Blodget, president of Cherry Hill Research and CEO/Editor in Chief of Silicon Alley Insider. "If a good number of banks hadn't failed, people would have dismissed the stress tests as propaganda. So from the government's perspective, I'd say they were about right (if any more banks had failed under those wimpy assumptions, people might have been terrified.)"

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he testing was first announced February 10. The departments and agencies involved in the testing include the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board.

On February 23, the Treasury announced that bank testing would begin two days later to ascertain whether the nation's 19 biggest banks had enough capital to weather "a more challenging economic environment." If not, the "institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government," according to the Treasury announcement. Federal officials sought to soften the stigma associated with finding that a bank required a "capital buffer" from the government, noting that "this additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers."

The results of the tests will be released next Thursday.

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"This is a garbage in, garbage out activity to placate the public and perhaps reassure investors. It would probably be fine for a strictly US bank which was a traditional retail and commercial lender (think a Washington Mutual). But for the really big banks with capital markets operations, this is a joke," wrote Yves Smithand, on the economics blog Naked Capitalism, on February 12.

In a February 23 story headlined "As Doubts Grow, U.S. Will Judge Banks' Stability," the New York Times reported that "many economists, Wall Street analysts and even some bank executives contend that some of the banks are already effectively insolvent."

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