The tests were created in order for the Treasury to be able to paint as rosy a picture as possible, of the situation that the country’s banks are in. This has not been denied, and in fact, it has been confirmed, although using different words.
“The point of doing this is to avoid a panic, not cause one”, said Geithner recently.
What happens if the government finds something that is worthy of a panic (which it probably has)? That’s where Geithner’s lies and acting skills come in.
Early this week, results of the tests started to leak out. The rumor on Wall Street is that 16 of the 19 major banks are actually insolvent. If that shouldn’t cause a financial panic, I don’t know what should.
I don’t know if this is true, but it certainly could be. Like I said, it’s a rumor.
The government released the details of how the tests were conducted today. This is how the stress test works:
The banks have to figure out what would happen to them if:
1. unemployment went up to 10.3%,
2. home prices fell an additional 22%, and
3. the economy contracted by 3.3% and remained flat in 2010.
Note that the banks are conducting these tests themselves, and it is not exactly in their interest to tell anyone that they’re insolvent. Supposedly, if the government does not find the information coming from the banks to be credible, the banks will have to explain themselves.
In short, there is no independent auditor, only two vested parties who both want to paint a rosy picture and reveal as little as possible.
So, Geithner’s speech on May 4th is rather predictable, no matter what the government finds. In fact, I can give you the short version right here right now, so you won’t have to spend time listening to it on May 4th.
Dear members of the press, (this is Geithner speaking)
For three months, the U.S. government has been conducting stress tests on the nation’s major banks. I’m here today to present the findings of these tests.
The tests were conducted in the most stringent of ways, in order to make sure that the nation’s banking system can hold up in our current economic times. We tested the banks under fictitious, harsh economic scenarios that are very unlikely to become a reality.
Our findings show that despite continuing difficulties in our economic system, and even under a scenario of significant further deterioration, our nation’s banking system remains safe and well capitalized.
In recent months, the banks have taken unprecedented steps to shore up their liquidity positions by writing down legacy assets and by attracting new capital. This, along with an apparent improvement in the overall economic condition of the country, makes it clear to us that our financial system is on the road to recovery.
Blah, blah, blah, banks are great and Wall Street should love me…
Thank you, and no questions please.
I have a strong feeling that the actual speech that Geithner will give, is going to consist of absolute rubbish. Everybody on Wall Street knows he’s lying, but they don’t care, they only care about how convincing his lies are, because that is what will move the market in the weeks to come.
For ordinary people, all this means that even more vital information is being swept under the rug in order to preserve the financial oligarchy, which is the mission that Geithner seems to think that he was given by the American people.
Moreover, I advise that the winner-takes-all voting system should be destroyed.