Well, This may go down as another "Who Could Have Foreseen" Moment..
Hopefully both the smell test (as this has failed), and this gentleman is wrong. If not: Get ready for TARP II, III, IV.. You get the idea..
And Since we lost 1/4 of TARP I, could you imagine going through that a few times again? How much money do we have to lose before we lose it all???
There's More In Moreville
From Naked Capitalism:
One of the examiners of the Keating 5 S&L Scandal has his views on the "Stress Tests" being planned.. Suggesting the results may be "preordained"..
Hopefully they are preordained that we need nationalization/pre-privatization/Whatever you wish to call it, but apparently he has his doubts..
Via e-mail, he has confirmed our suspicions about the bank stress tests announced by Treasury Secretary Timothy Geithner: they simply cannot be adequate, given the number and experience of the staff, and perhaps as important, their relationship with the banks
Some Quotes from him:
- If you did a real stress test, as Geithner explained them, you wouldn't just have a $2 trillion hole -- you'd impose regulatory capital requirements of 50%. (FYI, the regulators have the power to set HIGHER individual capital requirements based on unusually large risks at a particular bank.)
Would we fill a 2 Trillion hole without privatization? And if we lost 1/4 of it immediately?
Also, About CDOs, which still remains a problem..
The problem is compounded by the fact that understanding how the product is actually used (CDS is a good example) v. how its proponents picture it as being used is essential. Understanding its sensitivity to credit and interest rate risk is well beyond the ken. Understanding the liquidity risks and interaction effects is out of the question.
The rest is scarier, including the items he doesn't discuss.. the Commercial Real Estate Market, the Credit card defaults going up, and the ubiquitous More..
Hopefully he can turn back from being in the room, and involved with these people as head of the NY Fed, and not rolling over to them..
Where are Krugman, Roubini, et al when you need them?