Methodology of Stress Tests: Watch the Bouncing Ball Carefully... Do-do-do-do...

Thursday, May 07, 2009 , , , , 0 Comments

I remind my dear reader at this juncture that the stress test "water torture" is nearly over. Nearly. It has been a farce all along. You should know this already since you're here in the first place.

But let's just play along for a moment. Why is San Francisco Fed supervising the tests of San Francisco-based Wells Fargo? Why is New York Fed supervising the tests of New York-based Goldman Sachs?

If The Fed really wanted to lend a bit of legitimacy to the process and exercise that independence it is always going on about, perhaps it should have shuffled things around a bit and assigned stress testing responsibilities to respective regional banks in whose district tested banks do not fall. I'm just sayin.

A reasonable outsider might question the Federal Reserve System's motivation for such biased tests. Who in their right mind would front off their own district? Even the Fed. Or especially the Fed.

Want to know who belongs where of the top stress-tested banks before Thursday's announcement? Here you go: click here, damnit.

Can I make a very obvious observation? The Fed, SEC, PCAOB, OCC, FDIC, blahblahblah (insert made-up acronym here) should have all been well aware of banks' "capital needs" and "balance sheet problems" long before all of this "stress test" water torture farce.

If the top dogs at the New York Federal Reserve are in charge of "stress testing" the banks of their district (hi, Goldman! You bitches!), why in the high holy hell would they be compelled to do anything but sound the "all clear!" when it comes to bank capitalization?

Follow the bouncing ball here... of course JPM and GS will come out clean. For the NY Fed to say otherwise would imply that they have failed in their duty as ultimate bank regulator. Whoopsie! And here Goldman has only been a "bank" since last fall!

These "tests" are not important. Self-reported numbers "audited" by the interests charged with supervising said banks are irrelevant. I might suggest you look elsewhere and disregard the Treasury shenanigans but what would be the point?

There are better things to watch than this stress test debacle. You're smarter than that, America. Disregard the idiot in front of the "Financial Stability" sign, pls.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.