The Campaign Spot

Economic Conditions Beginning to Imitate Geithner’s ‘Stress Test’ Scenario

The results of the Treasury Department’s “stress tests” for banks will arrive sometime after the end of the month.

An intriguing detail in coverage when the stress tests were announced:

According to the new Treasury Department guidelines, the banks would have to assume that the economy contracts by 3.3 percent this year and remains almost flat in 2010. They would also have to assume that housing prices fall another 22 percent this year and that unemployment would shoot to 8.9 percent this year and hit 10.3 percent in 2010.

Obama’s budget presumes the economy contracts 1.2 percent this year. So the Treasury Department, not checking with Obama’s OMB, is telling banks to be ready for a much, much worse scenario.

But also note that the dire “stress test” scenario has unemployment “shooting up” to 8.9 percent . . . when it is already at 8.5 percent.

I’m looking at this and thinking, “Hey, guys, we’re experiencing something close to the worst-case-scenario.” 

Rex Nutting, MarketWatch’s Washington bureau chief, noticed as well:

We don’t know how the stress tests turned out yet — we may never know — but it’s clear already that the test is much too easy. The test is supposed to see what the banks would be worth if the recession worsened a lot.

But the recession has already worsened a lot, weakening as much as the stress test assumes — or more. Home prices are falling faster than the adverse scenario. Unemployment is rising faster than the government thought it would. And economic growth now is projected to be nearly as bad as the bad scenario assumes.

The private sector is stepping into the information vacuum left by the opaque and poorly designed government test. Bank stock analyst Mike Mayo of Calyon Securities has essentially done his own stress test on the banks’ assets and found they would be insufficient if loan delinquencies rise as much as he expects.

The government’s stress test has two fatal flaws: It’s being done in secret, and the government is putting its thumb on the scale. It’s almost enough to make you think the regulators are protecting someone.

I realize it’s not as sexy as Michelle Obama’s arms, but considering the stakes, you would think this would be getting non-financial press attention . . .

Most Popular

Politics & Policy

The Worst Cover-Up of All Time

President Donald Trump may be guilty of many things, but a cover-up in the Mueller probe isn’t one of them. House Speaker Nancy Pelosi, attempting to appease forces in the Democratic party eager for impeachment, is accusing him of one, with all the familiar Watergate connotations. The charge is strange, ... Read More
World

Theresa May: A Political Obituary

On Friday, Theresa May, perhaps the worst Conservative prime minister in recent history, announced her resignation outside of number 10 Downing Street. She will step down effective June 7. “I have done my best,” she insisted. “I have done everything I can. . . . I believe it was right to persevere even ... Read More
PC Culture

TV Before PC

Affixing one’s glance to the rear-view mirror is usually as ill-advised as staring at one’s own reflection. Still, what a delight it was on Wednesday to see a fresh rendition of “Those Were the Days,” from All in the Family, a show I haven’t watched for nearly 40 years. This time it was Woody Harrelson ... Read More
Politics & Policy

The Democrats’ Other Class War

There is a class war going on inside the Democratic party. Consider these two cris de couer: Writing in the New York Times under the headline “America’s Cities Are Unlivable — Blame Wealthy Liberals,” Farhad Manjoo argues that rich progressives have, through their political domination of cities such as ... Read More
Culture

The Deepfake of Nancy Pelosi

You’ve almost made it to a three-day weekend! Making the click-through worthwhile: A quick note about how National Review needs your help, concerns about “deepfakes” of Nancy Pelosi, one of the most cringe-inducing radio interviews of all time, some news about where to find me and the book in the near ... Read More
White House

For Democrats, the Party’s Over

If the Democrats are really tempted by impeachment, bring it on. Since the day after the 2016 election they have been threatening this, placing their chips on the Russian-collusion fantasy and then on the phantasmagoric charade of obstruction of justice. The attorney general accurately gave the ingredients of the ... Read More