Stress tests FAIL (unless fake)
We said from the beginning the stress tests were a complete sham. Just look at the numbers. 200 examiners for 19 banks? When Citi nearly went under in the early 1990s, it took 160 examiners to go over its US commercial real estate portfolio (and even then then the bodies were deployed against dodgy deals in Texas and the Southwest). This is a garbage in, garbage out exercise. The banks used their own risk models to make the assessment, for instance, the very same risk models that caused this mess. And there was no examination of the underlying loan files.
No examination of the underlying loan files? Incroyable!
Yves now calls her shot:
So did you get that? They all will be declared to pass in some form, no matter how dreadful they really are (if the remedy is putting in more Federal dollars, rather than a receivership, then the fiction that the money is not being wasted must be preserved). But so as to look sufficiently tough, some banks will be treated harshly. If it winds up being, say, Fifth Third (which I am told by John Hempton is a very well run bank, publishes much more honest financials than its peers, but is in simply terrible geographies, Michigan*, Ohio. Florida**) and not Citi, then we know the process is not just hopelessly politicized, but shamelessly so.
Yep. Let's watch for this.
NOTE * Tinfoil hat time: I've forgotten the primaries at this point, but I seem to remember that MI played a role.
NOTE ** Ditto FL.