Can someone "talk me down"? We are starting to get some details about the "stress test" that Secretary Geithner proposed several weeks ago and it does not sound promising.
It sounds like that the banks themselves will perform the "stress test" using the same fu*ked-up valuation models.
From Bloomberg:
The banks themselves will analyze system-wide losses under two economic scenarios, along with forecasts for internal resources to absorb the losses. Supervisors will discuss the results with the companies and determine whether an additional capital buffer is needed, according to the Treasury.
WTF - does 'discuss' the results mean. These financial conglomerates' models were wrong in assessing risk in the first place. I doubt that they have corrected them.
Treasury is going to supply two scenarios to the financial conglomerates to run through their models:
Losses will be projected under two sets of projections. Under the "baseline," the U.S. economy will shrink 2 percent this year and expand 2.1 percent in 2010. The "alternative more adverse" set of projections has gross domestic product dropping by 3.3 percent this year, with a 0.5 percent expansion in 2010.
I don't think the "more adverse" scenario is adverse enough but I will leave that to the economists to discuss. My big fish is the fact that the financial conglomerates themselves are performing the tests.
This "stress test" sounds very similar to another scam. Back in 2004 the Securities and Exchange Commission (SEC) quietly changed the 'net capital requirements' for investment banks. Included in the changes were self-policing bullshit mentality:
The commission’s decision effectively to outsource its oversight to the firms themselves fit squarely in the broader Washington culture of the last eight years under President Bush.
The SEC relied on risk management assessments provided by the investment banks. These assessments turned out to be a joke. Just consider Bear Stearns and Lehman Brothers.
The 'net capital requirement' situation sounds very similar to the 'stress test' in that it relies on the same wrong models and programs. This sounds very similar to 'self-regulation' and we know how that turned out. Secretary Geithner is certainly not heeding the call for bold and big ideas.