How is this for assuring markets of the "integrity" and "solvency" of U.S. financial institutions? Before the "stress tests" even begin, the U.S. Treasury Department issued the following statement, "...the vast majority of U.S. banking organizations have capital in excess of the amounts required to be considered well capitalized."

If the Treasury Department already knows this, then there is no need to "stress test" all those "healthy" banks - since that work must have ALREADY been completed, or the Treasury Department could never have made such a statement in the first place. 

On the other hand, if none of the U.S. banks have been through "stress tests", then what we have is the Treasury Department simply stating the results of the "stress tests" - before they have been begun. In other words, regardless of the ACTUAL health of U.S. financial institutions the Treasury Department intends to "doctor the books" to whatever respect necessary to produce "clean, bills of health."

In that regard, the "news" which lifted U.S. markets out of their deeply-negative territory was the re-circulation of an old rumor: that U.S. regulators would suspend "mark-to-market" accounting, and allow the "mark-to-fantasy" accounting of the banksters' already-discredited "valuation models".

Adding further comedy to what is ALREADY a farce before the "show" even starts, the Treasury Department also announced that those banks "failing" the test will get 6 months to raise the capital the Treasury Department deems necessary to meet its appallingly low standards.

So, a month from now, when the "stress tests" are completed, this is the likely scenario. The "health" of U.S. banks will be based on fantasy-valuations of assets - with no connection to the real world. Those financial institutions which somehow fail the "test" anyway, will have six months to raise the "necessary capital".

However, since the Treasury Department's assessment of "necessary capital" is ALSO based on the bank's fantasy-valuation of assets, raising the prescribed amount of capital may only provide 5-10% of the actual funding necessary for these banks to survive..

Thus, seven months from now, we will likely be in a situation where the banks labeled "healthy" could still be (secretly) teetering on bankruptcy, while the "sick" banks may have only raised nothing more than a down-payment on what they actually need to survive.

In other words, what is being delivered to the markets is a seven-month "smoke-screen", at the end of which time the U.S. financial sector will inevitably be much less healthy than their anemic (to be polite) condition today - since all the U.S. government will be doing is "sweeping the problems under the rug."

Gee, that sure makes ME want to rush out and buy the shares of a Wall Street bank!

{rokintensedebate} 

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