Monday, September 7, 2009
Yves Smith Smacks Stress Tests
Yves Smith (YS) smacks the recent bank "stress tests" at her Naked Capitalism, 23 August 2009, link: http://www.nakedcapitalism.com/2009/08/quelle-surprise-banking-industry-faring.html. YS writes, "The blog is a card carrying hater of the stress test farce of earlier this year". Amen. The stress tests were an Obama Administration exercise in public relations. Some key YS observations: "the article [Morgenson's] misses a much bigger implication: that the banks that are hitting the wall will be going into weak hands. There are not enough strong banks left for there to be a lot of sound buyers, So many of these weekend specials are merely kicking the can down the road. ... If [the Fed] can keep the shell game going long enough, and they can keep a steep yield curve, the banks will earn their way out. ... They might be able to continue to pull this off for a while, but the longer the game goes on, the more something is likely to give". Amen again. My bet is the dollar gives. One potentially complicating factor not present in the early 1990s when the Fed last suppressed short-term interest rates to enable the banks to "ride the yield curve" is public sentiment. Here's Morgenson: http://www.nytimes.com/2009/08/23/business/economy/23gret.html.
About 18 months ago I saw something new in some of my tax clients, i.e., an interest in the Fed. More of them now question the need for a Fed which they see reducing their bank interest income to increase bank profitability. They see the Fed aiding banks by emptying their wallets and want it abolished. They talk of Ron Paul's audit the Fed bill. In 34 years as a CPA, never before did even 1% of my clients express any interest in the Fed. I estimate 20% of my clients want the Fed abolished. Things may get interesting for Zimbabwe Ben and his minions. My last post on the "stress tests" was 31 May 2009: http://skepticaltexascpa.blogspot.com/2009/05/stress-test-kabuki-dance.html.