Are you insolvent?
1) Yes
2) No
3) Don't know
Do you expect to be insolvent in the future?
1) Yes
2) No
3) Don't know
Do you know what insolvent means?
1) Yes
2) No
3) Don't know
Do you wish your results to remain anonymous?
1) Yes
2) Oh hell yes
THANK YOU FOR YOUR TIME.
LOVE,
THE FEDERALES)
New York Post
Last updated: 1:47 am
April 8, 2009
By MARK DeCAMBRE
The stress tests the government are about to conduct on some of the nation's largest banks is being blasted by insiders at Sheila Bair's Federal Deposit Insurance Corp., who say it's a pointless exercise that's more sizzle than steak.
The FDIC's basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.
The tests are conducted by the Treasury Department and the Federal Reserve on the nation's 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase.
"It's a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn't actually work.
While specific details are still being worked out, the Treasury and Fed's tests are expected to determine how banks might perform under the assumption that unemployment ratchets up and overall economic conditions worsen beyond what the market has seen so far.
However, Bair and others argue that the remedial test won't be able to determine accurately how much each bank will need in the future.
These people say some banks found in solid shape today may later go to Uncle Sam hat in hand as the markets worsen. They also note that anything done now will largely be arbitrary.
Officials from the FDIC declined to comment.
The FDIC's panning of the stress tests highlights the growing rift between Bair and Treasury Secretary Tim Geithner over how to fix the ailing financial sector.
Many high-profile analysts already are voicing the concern that losses will pile up in areas most of Wall Street hasn't watched closely, such as residential and commercial loans that are currently on banks' balance sheets.
Banks can house these assets on their balance sheets at nearly their full value if they hold them to maturity. However, the credit crunch has made many of these loans worth far less. For example, market players said banks today will get anywhere from 60 cents to 80 cents on the dollar for option ARMs and home-equity loans they own.
Critics also argue that the stress test fails in comparison to other valuation methods such as Basel II, which took years to develop and was to serve as a global standard for assessing how much capital a bank should hold in relation to its risk.
"How is the Fed and the Treasury over a couple of weeks supposed to take a weird set of macroeconomic assumptions and come up with a number [for banks]?" one source asked.
The transparency of the test has also been called into question since expectations are that the Treasury won't disclose specifically which banks need more cash to remain stable and which will pass muster.
Treasury expects to release some of its findings at the end of April.
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