Geithner on How We Tested the Big Banks

Treasury Secretary Geithner is on a roadshow to prepare the markets for the results of the stress test.

Last night, he was on Charlie Rose (PBS) talking about the benefits of the stress tests:

There was also an Op-Ed piece in the NY Times written by Treasury Secretary Tim Geithner on “How We Tested the Big Banks.” Definitely worth read!

THIS afternoon, Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve will announce the results of an unprecedented review of the capital position of the nation’s largest banks. This will be an important step forward in President Obama’s program to help repair the financial system, restore the flow of credit and put our nation on the path to economic recovery.

The president came into office facing a deep recession and a damaged financial system. Credit had dried up, forcing businesses to lay off workers and defer investment. Families were finding it difficult to borrow to finance a new house, buy a car or pay college tuition. Without action to restore lending, we faced the prospect of a much deeper and longer recession.

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  1. So far, the big difference is the proactive action that has been taken by the Obama Administration. It would be painful for the short term, but long term, I dare say, the markets will appreciate it.

  2. The “Stress Test” used a worst case residential mortgage delinquency rate that is a level Fannie’s already reached (3.15%, up from 2.42% last qtr)! As unemployment rises, that will worsen. you can find the Supervisory Capital Assessment Program (SCAP) white paper on my website.

    It wasn’t much of a test (or maybe an open book test). When Treasury first communicated to the banks the levels of additional equity they would require, they screamed bloody murder. the levels were then reduced.

    Frankly, I suspect this whole “green shoots” rally has been engineered by the Fed/Treasury, PPP (Goldman Sachs). The U-6 unemployment (the one that matters) is over 15%, and earnings are the worst in decades- there is no real recovery underway.

    When pundits are forced to talk about the second derivative being positive, I laugh. That’s like telling the traffic cop your deceleration was positive as you went through the stop sign. its only when the first derivative numbers improve that we will be seeing the other side of the recession.


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