-
Subscribe to a Feed
That’s Not a Stress Test |
 Image courtesy of flickr/Stuart Crawford We finally got the information on the stress tests. The government will consider two scenarios: baseline and worst case. The goal of the stress test is to see if banks have the capital to weather a darker storm. However, and incredibly, the worst case scenario is not really a worst case. The government’s idea of the worst case is a GDP decrease of 3.3% this year and growth of 0.5% in 2010; 8.9 unemployment rate in 2009 and 10.3% in 2010. That is not the worst case! That is what I call the “baseline”. We are probably at 8% unemployment in February. As a result, the stress test is a sham. It yields very little information. The government’s rosey worst-case scenario perpetuates the incompetent risk management that got us into this mess. See my comments on this topic on BNN. |
I saw you on BNN, and I was shocked that you believe the worst case scenario is not really a worst case. I am to pursue my research as a visiting scholar on such topics as financial risks and crises in the US. I wish I have opportunities to do copperative research with you.