Bank stress tests - what am I missing? Whole lot I imagine - not an easy subject for the unwashed, unmatriculated, uninitiated to grasp. It's clear that Obama intends to kick the banking crisis down the road with hope that improving conditions will save the day - from the people I read I gather that this is a vain hope that runs the very real risk of creating and ennabling zombie banks and thus replicating the reviled Japanese economic stagnation of the last decade. The stress tests it would seem are not going to declare any of the banks insolvent even though the IMF states that banks have about 5 trillion dollars of bad assets buried in their books - ie, they're insolvent. Instead, it looks like the stress tests are going to contend that some of the banks need several billions more in captial which will come from the gov't through various less than transparent accounting tricks like conversion of stocks etc etc and then everything will be fine - ie what we end up with are gov't controlled zombie banks. As far as I understood it the whole challenge of the banking crisis was to avoid such a thing.
I'm missing something - or they're missing something - much more disturbing thought. I suppose should certain conditions prevail that what they're doing could prove the most reasonable course, allowing banks to earn their way back from the brink of insolvency - but on the surface it looks like Obama style politics at its very worst.
update: banks are not carrying 5 trillion in bad debt - worldwide IMF estimates banks carrying about 4 trillion, but as for American banks? No one really knows - except that significantly worse than stress tests are suggesting [that banks are about 80 billion shy of adequate capitalization]. Bad enough to render tests a sham? Unknown.
