Comments on: Evaluating Geithner’s Stress Test

By: Ian Welsh

Ian Welsh — Tue, 28 Apr 2009 04:49:48 +0000

I was the managing editor at the Agonist (as I was at FDL), but it’s Sean-Paul’s blog, not mine. Since I have been at so many blogs, and since some are now no longer even online, I figured I should create a home blog so there’s one central clearing place, not least so that in the future I can, myself, find posts I’ve written.

At the current time I’m also posting at Huffpo and here, and I’ll probably do some writing for the Ag at some point, but ianwelsh.net is the central point to keep it from all flying apart.

By: Synoia

Synoia — Tue, 28 Apr 2009 04:27:12 +0000

it appears the stress tests were focused more on P&L statements, not balance sheets.

Which amkes sense. The banks are profitable, and can remain so for a long as they can extract profits (credit card interest, forex trading, and fees) that are higher than their costs (interest payments, saleries).

Capital ratios are forgotten. Liqudity and cash flow are now king (P&L), and valuations (Balance Sheets) just are unimportant, especially when the tax payer (treasury) is willing to print enough money to ensure liquidity.

It’s not about losses, becuse no amount of loans by the government can make balance sheets balance, Capital investment could which is part of the game to convert the Government loans and preferred stock to equity. It’s about liquidity & P&L.

By: james

james — Tue, 28 Apr 2009 03:55:49 +0000

OK, is The Agonist not Ian’s site? I linked from the blog list on the right of the page and went somewhere completely different.

By: james

james — Tue, 28 Apr 2009 03:37:29 +0000

Nice to see the Agonist back.

By: tk1200

tk1200 — Tue, 28 Apr 2009 01:37:49 +0000

So it’s a smart strategy for banks to forego interest income from risky loans, thereby retarding the recovery of the American economy, because in the end the Department of the Treasury will simply inject more US taxpayer capital into these unprofitable financial institutions or backstop the acquisition off the weak bank by a bank that is already too big to fail thereby perpetuating the very model of banking that brought the American economy to its knees, but on an even larger scale.

The real American economy be damned. There is no penalty for banks that prefer excess liquidity to lending at the expense of the real economy, and are provided with a safety net that encourages them to do so, because nothing is too good for our profits-are-capitalized-but-losses-are-socialized financial economy.

By: Eureka Springs

Eureka Springs — Mon, 27 Apr 2009 23:08:17 +0000

I have a serious case of the slow tubes today.. but FDL seems to be loading just fine.

By: Eureka Springs

Eureka Springs — Mon, 27 Apr 2009 23:05:33 +0000

I am an American, by God, tax paying citizen. And I am stressed!

Did I pass the test too?

Always good to see you here Ian. Thanks.

By: Adie

Adie — Mon, 27 Apr 2009 22:46:00 +0000

OT with apologies.

Is anyone else having trouble logging on, or even accessing FDL late afternoon into early eve EDT ?

Aaarrrrrghhhh!

Gremlins are about, or someone forgot to tell the toobz the temp. has been changing outside, so they’re filled with ick and mold instead of the crystal clear Lake. >8-

By: tbsa

tbsa — Mon, 27 Apr 2009 22:27:24 +0000

So the point of the stress test is to figure out whether or not the banks “can pay their bills” for the next two years?
That has got to inspire all sorts of confidence in the banks.

By: Teddy Partridge

Teddy Partridge — Mon, 27 Apr 2009 22:20:14 +0000

Hi Ian, thank you for explaining this.

So, for all their fancy modeling and all their expert staff, this exercise was “How much money will the banks need for the next two years if all goes well?”

I don’t really see how this builds investor confidence in banks unless investors believe that the government will continue to supply the banks whatever money they need. Which Geithner seems to believe is the only answer, but with considerable pushback, if one believes the NYT today.