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Author Topic: Roubini's description of the tests as a "sham"...  (Read 1988 times)
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WhiskeyGirl
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« on: May 08, 2009, 11:26:11 PM »

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...Banks were tested as to how they would cope under economic conditions as currently forecast, as well as under a more "adverse" scenario. The first test envisaged an unemployment rate of 8.4 per cent in 2009 and 8.8 per cent in 2010, while the "adverse" scenario tested for unemployment rates of 8.9 per cent in 2009 and 10.3 per cent next year. Yesterday, it was announced that 539,000 jobs were lost in April, meaning that the unemployment rate has already hit 8.9 per cent. "At the rate of job losses in the US today, we will surpass a 10.3 per cent unemployment rate this year - the stress test's worst possible scenario for 2010," high-profile economics professor Nouriel Roubini said this week.

Roubini's description of the tests as a "sham" was echoed by MIT professor and former IMF chief economist Simon Johnson, who said that the government's stress scenario was no more than a "mild and short-lived downturn".

Quote
The stress tests involved approximately 180 examiners analysing bank balance sheets over an eight-week period - too short, critics charge. "In that time period a team of that size would be able to examine the asset quality of two or three massive banks with plain vanilla assets," said William Black, an economics professor at Missouri university and author of The Best Way to Rob a Bank Is to Own One . A meaningful test is particularly complex, he said, adding: "There were no real examinations."

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Black was one of many who criticised the "one size fits all" nature of the stress tests, arguing that this had "grossly understated derivatives risk", the "primary risk" faced by the biggest banks. The tests focused more on bank loan exposures than complex derivatives exposures, even though the latter is where the real systemic risk arguably lies. ...

read more here -
http://www.irishtimes.com/newspaper/finance/2009/0509/1224246190799.html

I read somewhere that Goldman Sachs has little 'consumer' exposure.  Apples to oranges with the pack?  Why did Goldman take so much taxpayer money?  The AIG pass-through?
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WhiskeyGirl
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« Reply #1 on: May 08, 2009, 11:27:35 PM »

from the above article -

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Ultimately, the tests were "not designed to really test anything", Simon Johnson charged. "They are designed to make it seem like the government has things well in hand."

I would agree.

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A's Fever
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« Reply #2 on: May 09, 2009, 01:03:00 AM »

The banks would agree also!  They had nothing positive to say about the tests, either.  The tests seem to be nothing more than a political ploy.  One thing though that the tests did accomplish, or are in the process of accomplishing, is that some banks have already raised more capital which certainly strengthens their position.  Wells successfully completed a secondary offering today,  Bank of America will soon do so; and Goldman raised capital months ago.  Others are in the process of selling off assets to raise capital.  So the tests, or the Treasury, has succeeded in shoring up capital without further cost to the taxpayer.

GS, BAC and WF have been vocal about paying back the TARP funds as soon as they get the OK because they don't like the strings attached.  In the meantime, none of the banks have missed an interest payment so the taxpayers are making money (5%?)off the deal.  It will be interesting to see when and how the Treasury allows the banks to repay - will there be a tug of war?

Also, the earning power of the big banks is quite strong, and in addition the Fed's quantitative easing policy provides a very beneficial environment for bank earnings, so the banks should continue to show earnings improvement, which will improve capital.

And IF (a very big IF I know), if the real estate market is bottoming and begins to show stability, some of the toxic asset problem will improve.  Especially in conjunction with the easing of the mark-to-market rule that occurred last month.

On the whole, the banks are in a much better position than they were last fall, when the financial system was on the brink of collapse.


 
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WhiskeyGirl
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« Reply #3 on: May 09, 2009, 09:28:08 AM »

I'm ignorant.  What assets do banks own that they could sell? 

What do they invest the money from the sales of assets in?  More bad debt?  Bad loans?  Credit cards used for internet gambling and money laundering?

It seems like assets are a good thing to have.  At some point, the paper money from those sales may be worthless. 

A recent example from history ~

Quote
After a series of fairly ineffectual policy actions, the Bank of Japan undertook its famous quantitative easing policy from March 19, 2001, to March 9, 2006. Under this policy, the Bank shifted its day–to–day operating target from the overnight, call–money rate to the level of current–account balances (reserves) at banks. Over the five years that the program was in place, the Bank of Japan raised its current–account target nine times. In implementing the quantitative easing policy, the Bank of Japan also increased its outright purchases of longer-dated Japanese government securities. The objective was to flood banks with excess reserves, which, of course, would keep the call-money rate at zero.

The connection between the quantitative easing policy and the macroeconomic recovery remains somewhat more flimsy. Most observers believe that because the quantitative easing policy aided the banking sector, economic activity at least did not deteriorate further. The pace of economic activity did pick up, with contributions from consumer spending and investment, but exports, which benefited from growth among Japan’s trading partners, spurred much of the improvement. Although deflation ended in 2006, along with the quantitative easing policy, it returned after a very short hiatus in 2007, and continued until the recent commodity price boom.

read more here ~
http://www.clevelandfed.org/research/trends/2008/1208/01intmar.cfm

It looks like the Japanese experiece was aided by exports.  It looks like it took over ten years.

What exports does the U.S. have?   The U.S. continues to export jobs.

Are their any strings to all that move the Obama administration is giving away?  A 'buy American' provision?  A credit card for American goods and services?  Or a credit card to buy from everyone buy Americans?

Where is the job creation?  The saving of jobs?  Is all that stimulus money just being squandered and wasted?

jmho
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WhiskeyGirl
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« Reply #4 on: May 09, 2009, 04:51:37 PM »

Was The Stress Test A Con All Along?

http://www.cbsnews.com/blogs/2009/05/09/business/econwatch/entry5003442.shtml
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WhiskeyGirl
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« Reply #5 on: May 09, 2009, 04:57:02 PM »

I was listening to Fox this morning and hear a guest say some interesting things. 

My paraphrase - he commented that everyone should train for jobs of tomorrow and in the future people would not be going to school for jobs for old ideas that didn't work, like Wall Street.  This person specifically mentioned 'Wall Street'.

Does this mean that Wall Street has no future?  There will be no stock markets in the future?  No commodities? 

Will it just be one global car company?  A combo Fiat, GM, Chrysler, Opal, and anything they can slap together?

Somehow, I think mega anything stifles innovation and economy.

Maybe now isn't a good time to buy stock or other investments.

jmho
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
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