What was Learned from the Bank Stress Tests?

The Treasury Department released its finding of the bank stress tests yesterday. In short, their findings concluded that 10 of the 19 largest U.S. banks were in need of 75 billion dollars to avert bankruptcy and endure the current economic recession. Nearly half of the 75 billion identified was for Bank of America. Thus, 9 banks qualified for a combined 40 billion in bailout money. What observations can be made from these bank stress tests?:

  1. It is somewhat curious as to why the Treasury Department conducted these stress tests since this is the job of the FDIC.
  2. It is also very obvious based on the reaction on Wall Street that the financial industry is surviving the recession relatively well.
  3. The Obama administration’s goal is to make sure ALL of the nations top 19 banks survive this recession. I have this before if the government let a few of the failing banks go into bankruptcy, it would not have hurt the economy any more than it has already suffered. The failing banks could have been bought out by a few of the better managed banks. Thus, the Treasury Department’s use of the stress tests is to instill confidence into the American public and to justify the government’s role to take over and run our nation’s top banks.
  4. The biggest question to ask ourselves is why the Obama administration released these results. After all, it has never been the practice of the government to release this type of information. There is only one reason for the government to do this. The reason is propaganda. They want to show that their bailout action is working and they are trying to give the American public confidence that they have the situation under control. After all, if the stress test results would have been worse, would the Obama administration still have released the results? They could have used these results to instill fear into the public to show that more money is needed to restore the financial sector. They could have used fear mongering tactics to further regulate the financial industry. However, they would probably opt to not create a panic and frenzy on Wall St. and in the public. Hopefully, the Obama administration is releasing the full results of the test and not “cherry picking” results to show the public such as what he did with the torture memos. I am always suspicious when an administration releases information that has never been made public in the past. Obviously the motive is propaganda to insight public confidence and hopefully they are telling the whole story. I have not seen any disclosure of the accuracy and the assumptions made to come up with the stress test scores. Thus, we have to take the government’s word they have done a quality job recording these results, and it is not like I have any confidence the government is capable of doing a good job on anything.
  5. To me, the best news from the stress tests is that the banks are going to try to raise the capital to cover their debts. If the banks have learned anything, it is that they know it is the objective of the Obama administration to regulate them. Thus, they are trying to avoid accepting more government bailout money. Even banks that did not want bailout money were not allowed to give the money back. Hence, it was evident that the administration wanted to regulate as many banks and parts of the financial industry as possible.

Blog Site: http://patrickbohan.blogtownhall.com/

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