The over-hyped bank stress test
The New York Times is reporting that the 19 banks which are undergoing the fabled stress test are likely to pass them:
Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs “exceptional assistance,” the government, that is, taxpayers, will provide it.
Yes you read that last line correctly. The bank can’t possibly fail the stress test because if and when it actually begins to collapse the government will step in to bail out the bank, so failure is never a possible occurrence. Wow. So that’s what the stress test is supposed to do. It’s supposed to tell idiots like us that insolvent banks will never file for bankruptcy because we idiots will always step in to save them. To make matters worse, the taxpayers’ whose money is at the whim of Treasury who is too keen to bail out failing banks without any strings attached won’t know the outcome of those tests, except simply that they’ve passed them:
But the tests, which are expected to be completed by the end of this month, are being conducted out of public view. Federal law prohibits the unauthorized disclosure of the results of any bank examination, including the stress tests.
The worst part? Even if the banks fail the test, they’ll be given six long months, during which unemployment will persist, smaller companies will fold up and economic activity will deteriorate further, to raise capital from private investors. What happens if they can’t raise capital in that six months? Well, taxpayers will simply bail them out once again! Hooray! Everybody wins except the taxpayers!
Several people involved in the process say there is a wide range of results among the institutions. Those that fall short will have six months to raise capital from private investors; if they are unable to do so, the Treasury Department has said taxpayer money will be available.
Yet more reason to demand that Geithner resign.