It's Official, the "Stress Test" Was Just Theater

We are getting reports now of what Timothy "Eddie Haskell" Geithner's stress test has determined, and it's clearly not reality.

Bank	Needs Capitalization	Amount
Bank of America	Yes	$34 B
Wells Fargo	Yes	$15B
Citigroup	Yes	$5B
Morgan Stanley	Yes	$1-2B
Goldman	No
MetLife	No
JP Morgan Chase	No
Bank of NY Mellon	No
American Express	No
Capital One	No
BB&T	No

This is a damn joke.

You have one "oh my God" number, for Bank of America, and it's about 50% of their market cap, but Citi, which is clearly in much worse shape is somehow better capitalized by a factor of 6.

This is simply not true, even after BoA's disastrous acquisition of Merrill Lynch and Countrywide.

Also note this joint statement from the Treasury Department, Federal Reserve, FDIC, and Office of the Comptroller of the Currency, which, to my untutored eye, appears to say that they are going to go with their cockamamie scheme to claim that capital is increased by swapping preferred for common stock.

It's an accounting trick, and what's more, it's one where the taxpayer has just taken a second haircut.

They are making great theater by pretending to talk tough and giving a month for the banks that need to to present a plan to raise capital, and 6 months to have this plan in action, but it's all a lie, since the plan may very well be, "suck on this, taxpaying rubes".

I disagree with former IMF chief economist Simon Johnson's analysis, which is that they are selectively leaking to create confusion in order to keep people from looking at whether the test was too hard on the banks.

I think that his analysis is incomplete. The "stress test" begins and ends with public relations. It's a sham, and it has always been a sham, intended to show that the government was serious about reigning in the big banks, without actually engaging in the necessary actions, like seizure of insolvent institutions that would actually be required for it to work.