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The Banks's Rigged Stress Test
Read it and weep. The NYT tells us that the baseline scenario for the stress tests is that the unemployment rates rises to 8.4 percent and home prices fall 14 percent. The worst case scenario is that unemployment rises to 8.9 percent and house prices fall 22 percent.
Okay, unemployment will almost certainly reach 8.0 percent and possibly 8.1 percent in February. It might cross 8.5 percent in March. The worst case scenario is that it hits 8.9 percent by the rest of the year?
Remember, this is the same crew that told us that there was no housing bubble. When it became clear that there were serious problems, they assured us that they would be contained in the subprime market. After Bears Stearn collapsed they told us that they didn't see another Bear Stearns out there.
These stress tests indicate that our economic policy makers are still in a serious state of denial. Why isn't the media ridiculing them and telling the public that the folks making economic policy still don't understand the economy.
--Dean Baker
COMMENTS (12)
Geithner said tonight (on the News Hour) that the administration will seek to "contain the damaging housing crisis". Naturally, Jim Lehrer had no follow-up question regarding what he meant by this, nor did he probe the criteria for the stress tests.
Given the magnitude of the damage caused by the collapse of this bubble, you would think greater attention would be paid to the government's housing agenda. Based on their public pronouncements of late, it would seem that by "containment" they mean propping up housing prices. Since this is what caused the problems in the first place, it is staggering that nobody in the press is questioning the wisdom of such a strategy.
Perhaps we should consider treating heroin addicts with similar methods. Apparently if you just give them more heroin, those nasty detox symptoms will go away.
Posted by: srla | February 25, 2009 9:38 PM
Whose fault is that we have the same crew?
Posted by: DareToHope | February 25, 2009 10:16 PM
DareToHope: The DLC.
Posted by: Mike Meyer | February 25, 2009 11:50 PM
Is it time to call down fire on our own position? When the enemy is inside the wire, that is what you do, right?
Unfortunately, one has to be an good accountant to know what kind of deal the taxpayer is getting, or:
I will summarize the situation, from the artist's perspective:
You heard his speech. He is no dummy. He has the power to devalue the dollar. He has the power to attack Iran. Hell, he has already forgiven us of our war crimes, with off-hand remarks!
Thinking two steps ahead is something that he can do, and we cannot. For instance, I wouldn't nationalize the banks until Eastern Europe has fallen and the European Banks and the Euro are under greater strain. I may even want to see all of OPEC swirling in the toilet bowl...this man has options!
I'm just saying that some believe that Barak is busy setting his picks and just has us all fooled with his head fakes. The dunk is delayed, but imminent.
Common around every great leader, are anxious people pressing their faces up against the glass. It is exciting. Everything is on the line in the one question: who is Barak Obama!?
My eyes are glued to the news...
Posted by: Stanley | February 26, 2009 12:39 AM
I must add that my hope for good leadership in America, from the White House, is tempered,..with hammers. I am the crowd cheering on Mickey "The Ram" Rourke, in his 42nd season of fighting. Even if he wins, the obvious question remains: what will the monster do next?
I entered the work force after college and now, at 46, I'm nearly defeated. I am certainly devastated. I know that there is no going back. It is time to really find out what this brain of mine can do,..after I pause and bleed out out of my eyes oh so much gray matter in hot, salty tears.
Posted by: Stanley | February 26, 2009 1:18 AM
If Obama played poker, his current actions would best be described as being "on tilt" - making extraordinarily risky bets hoping to become profitable through sheer luck.
Posted by: Unsympathetic | February 26, 2009 10:46 AM
TO: DareToHope
CC: Mike Meyer
Myself, I incline to blame President Summers.
Happy days.
Posted by: Anonymous | February 26, 2009 10:48 AM
srla,
The government's propping up housing prices is what caused these problems in the first place?
Please explain.
Posted by: Holdie | February 26, 2009 11:00 AM
President Summers selected BO and just gave the SOUA Tuesday night to the entire nation.
Posted by: James | February 26, 2009 9:22 PM
If I may suggest: I bet Geithner knows that most of the majors can't pass even the slow-ball stress tests. The aim here might be to preempt as much as possible any GOP/Wall Street rhetoric to the effect that the tests were too stringent. This shouldn't be hard, especially if, in a few months, the trends are more toward worst-case than baseline. If (really, when) it comes to the nationalizations, it should help enormously on the political-will front if Geithner et al. can credibly claim, "We're actually easy graders but they still got an F-." And if anybody in this administration has the inside knowledge required to set such grading criteria confidently, it's probably Geithner. Maybe he was held over from the BushCo administration precisely because he'd been in so many greasy little loops, knew where so many bones were buried, and is so well-connected and well-liked among the culpable. Who better to play Good Cop in this movie?
Posted by: Michael Turner | February 27, 2009 1:03 AM
The AP today:
Posted by: Jonathan Lundell | February 27, 2009 5:48 PM
Apparently if you just give them more heroin, those nasty detox symptoms will go away.Thanks
Posted by: Wii | February 9, 2010 4:09 AM