ROUBINI
New York University economics professor Nouriel Roubini went batshit on Geithner in Forbes Magazine, yesterday, essentially telling us the upcoming stress test results, "Stress test results are not worth the paper on which they're written."
The 'Stress Tests' Are Really 'Fudge Tests'
Nouriel Roubini, 04.16.09, 12:01 AM EDT
The spin machine about the banks' stress test is already in full motion. Some banking regulators have already served up--to The New York Times--their spin that all 19 banks that are subject to the stress test will pass it. In other words, not one will fail.
Roubini (continued)
But let's look at the actual data. The macro data for the first quarter on the three variables used in the stress tests--growth rate, unemployment rate and home-price depreciation--are already worse than those in the U.S. government baseline scenario for 2009. They are, in fact, even worse than those for the stressed scenario for 2009.
The government used assumptions for the macro variables in 2009 and 2010 that are so optimistic that the actual data for 2009 are already worse than the adverse scenario. As for some crucial variables, such as the unemployment rate--key to proper estimates of default and recovery rates for residential mortgages, commercial mortgages, credit cards, auto loans, student loans and other banks loans--the current trend shows that by the end of 2009 the unemployment rate will be higher than the average unemployment rate assumed in the more adverse scenario for 2010, not for 2009. Put plainly, the results of the stress test--even before they are published--are not worth the paper on which they're written.
Roubini tells us, across the board, when it comes to our nation's rising unemployment, America's diminishing gross domestic product ("GDP"), and tanking U.S. home prices everywhere, that it's virtually set in stone that reality will greatly exceed the government's "worst-case scenario" as much as a year ahead of schedule, too.
In conclusion, recent data and trends for the unemployment rate, GDP growth and home prices show that, as of Q1 of 2009, actual macro data are much worse than the baseline scenario of the stress tests and even worse than the more adverse scenario of the stress tests. So the results of the stress tests--even before they are published--are useless.
Hat tip to Compound F, who beat me to the punch on much of the Stiglitz rant. But, the reality is that Joe Stiglitz' words do have substantial impact within the Obama administration, as much as Larry Summers might like to think otherwise.
STIGLITZ
Behind the scenes at 1600 Pennsylvania Avenue--despite the fact that Larry Summers dislikes the guy--it's common knowledge that Obama's and Biden's closest advisors on the economy, Austan Goolsbie and Jared Bernstein, respectively, downright idolize Nobel laureate Joe Stiglitz: Chasing Stiglitz.
So, when this appears in the MSM, as it did yesterday, it does have a lot of impact: Stiglitz Says White House Ties to Wall Street Doom Bank Rescue. (I can see the "we're doomed" comments to this diary, already!)
Stiglitz Says White House Ties to Wall Street Doom Bank Rescue
By Michael McKee and Matthew Benjamin
April 16 (Bloomberg) -- The Obama administration's plan to fix the U.S. banking system is destined to fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
"All the ingredients they have so far are weak, and there are several missing ingredients," Stiglitz said in an interview. The people who designed the plans are "either in the pocket of the banks or they're incompetent."
bold type is diarist's emphasis
Wow! Does criticism get more severe than this? (From someone who supported President Obama for election, no less.)
Stiglitz goes on to say that the Troubled Asset Relief Program, a/k/a TARP, will not effectively capitalize the banking system, and the administration's efforts to date aren't direct enough in terms of effectively addressing the problem. Some more Stiglitz tidbits...
...Stiglitz said there are conflicts of interest at the White House because some of Obama's advisers have close ties to Wall Street.
"We don't have enough money, they don't want to go back to Congress, and they don't want to do it in an open way and they don't want to get control" of the banks, a set of constraints that will guarantee failure, Stiglitz said.
..."The bank restructuring has been an absolute mess...."
In the article, Stiglitz rails on everything from the Public-Private Investment Program, PPIP, to how our government's more or less owned by Wall Street.
This is one serious can of whoop-ass. Click the link, above, for the full story.
I believe matters are reaching a critical mass, in general. The reality, IMHO, is Stiglitz and Roubini are spot-on in their updated assessments, no matter how badly some folks reading this might wish to bloviate otherwise.
So, by all means, bloviate below, accordingly...