What The Stress Tests May Show

I think stress tests on the banks are going to be a continuing saga of gloom that will further sour the public on high salaries for incompetent management. This from Obsidian Wings is conclusive, even if it is extreme. FULL SOURCE

Hilzoy writes:

I have been hearing for years and years about how the financial services sector pays such exorbitant wages because the people who work there are so immensely talented that they are cheap at $50 million a year. I never particularly bought that line before. But I never imagined that all those Masters of the Universe would do quite this badly. If we had paid them $50 million a year to go far, far away and leave our financial system alone, it would have been a bargain.


One thought on “What The Stress Tests May Show

  1. AZgrammy says:

    Stress this: stress tests are useless against non-prime problems

    What commentators have missed is that big banks often do not have vital non-prime loan files now.
    That means that neither they nor Treasury know their asset quality.
    It also means that Geithner’s “stress tests” can’t “test” assets when they don’t have essential information to “stress.”
    No files means vital data are unavailable, which means no meaningful stress tests are possible of non-prime assets that are causing greatest losses.

    A rating agency (Fitch) first reviewed a small sample of non-prime loan files after secondary market in non-prime loan paper collapsed and non-prime lending virtually ceased.

    Fitch’s report on what they found:

    Fitch’s analysts conducted an independent analysis of these files with benefit of full origination and servicing files. Result of analysis was disconcerting at best, as there was appearance of fraud or misrepresentation in almost every file.

    Fraud was not only present, but, in most cases, could have been identified with adequate underwriting, quality control and fraud prevention tools prior to loan funding.

    Fitch believes that this targeted sampling of files was sufficient to determine that inadequate underwriting controls and, therefore, fraud is a factor in defaults and losses on recent vintage pools.

    * those big banks and Treasury don’t know how insolvent they are because they didn’t even have loan files
    * a “stress test” can’t remedy banks’ problem — they do not have the loan files.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s