Listen to Yves, not the fluffers and pom-pom boiz. (After all, Simon Johnson does.) She writes:

[T]he stress tests fell far short of the needed level of review. First, they were administered by the industry based on scenarios provided by the industry. Most observers found the “adverse” case to be too optimistic. Even worse, banks got to use their own risk models, the same ones that got them into trouble. And there was no independent verification of the quality of the accounting. The number of examiners per bank was well short of what you’d need to probe a single business, much less an entire firm.

That's a nice way of saying that the mere possibility of accounting control fraud was not on the table.

Second, the industry got to negotiate the results. This is simply unheard of. That suggests both a lack of confidence in the process and a lack of belief on the part of the key actors (Treasury Secretary Timothy Geithner, in particular) that the government needs to set the parameters and demand compliance.

Actually, I think Yves is just a little off on the second point. Maybe if we made a clarifying assumption?

Maybe if we just assumed, for the sake of the argument, that the banks and the "government" are one and the same? Then all that so-called compliance stuff becomes meta and goes away. After all, since when did the government negotiate with itself? Can my right hand give my left hand money, as Wittgenstein asks...