With great fanfare, the Obama administration announced it was going to ‘stress test’ the banks; that is, put their balance sheets through ‘adverse’ scenarios to see if the banks can remain solvent. However, the details show that the stress testing is a joke . For 2009 and 2010, the following ar assumed:
- Real GDP of -3.3% and +0.5%.
- Civilian unemployment rate: 8.9% and 10.3%.
- Home prices: -22% and -7%.
This is laughable in the report this morning that GDP fell 6.2% in the last quarter alone. It’s going to show some banks are solvent when the real economic conditions of the next two years will put them under. But I guess what would be felonious fiction for the rest of us is OK when the government owns 36% of one of the major players.
I don’t hold up much hope for banks like Citi. However, the rest of us might stand a chance if Obama and his economic advisers would just stay off the air. Here’s the market graph from yesterday; Obama spoke about his plans in the early afternoon and his remarks were posted on CNN about 2:20pm:
Filed under: Politics
