Stress Test Sham

Wednesday, June 10, 2009

The recent government stress tests were made laughable last week as the US unemployment rate hit a recession high of 9.4%. This unemployment data was released Friday, June 5th, less than a month after the government completed the stress tests of 19 major financial companies. The tests were designed to determine which financial institutions are strong enough to weather a further weakening in the US economy. As of yesterday, ten institutions passed the tests and have been approved to repay the borrowed TARP funds.
So what's the problem? The stress tests were devised to test banks in a variety of deteriorating economic conditions from mild to adverse. Yet, the most adverse scenario measured their resilience to an umemployment rate of 8.9%. Literally, less than a month after the results were released, the umployment rate is higher than the most adverse scenario tested. What a joke! While we never supported the stress tests from the beginning, this just makes them comical at best, and highly detrimental at worst.


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