The Fed’s Stress Test Shows Zero Integrity

March 13, 2012

The Fed releases its latest gamed stress test, based on lower capital requirements to 5-6%.  Total capital for top 6 banks is $632 Bn, leveraged 13X. The Fed ASSumes a capital loss of only $116 Bn on $8 trillion in fictitious capital? 13% unemployment assumption and a $116 billion loss?  Stock market halved and only $116 Bn in capital loss? Zero integrity, any thinking person can see through that. Letting banks with 5 1/2% ratios (after shaving  a mere $116 bn) raise dividends and buy stock like it is some good housekeeping seal of approval  is beyond outrageous.   “Bonuses” and “compensation” for the criminals who run these firms are sure to follow.

And what they really need to ask, is what happens when either the ECB and Fed remove their heroin drip and refrains from bloating their unbelievable, horrific losses  portfolios for so much as a couple weeks. In fact I propose quite seriously as my main stress test that the ECB and the Fed go five business days without doing anything, no open market operations, nothing, nada, not buying a single penny’s worth of some bloated overpriced security, and let’s see what happens.   What happens if the cost of their free deposits rose to the under reported inflation rate of 3%? or even 2%.  Answer: they would be wiped out no matter what Winston says about the “stress test” from the bowls of Ministry of Truth. That’s how you conduct a real stress test.

Elsewhere on the totally lacking in credibility front comes the CBO.  Early in February the CBO released its first forecast for the 2012 budget deficit. The number then? $1.08 trillion. Just over a month later, the CBO has released its amended budget deficit. The bottom line this time around: an increase of just under $100 billion, to $1.171 trillion.

In the “just sayin” department the word is out that rents are getting bubbly. You will recall that the CPI is constructed using a concept called “owner’s equivalent rent of primary residence (OER).  This is a squidgy term for “how much could you rent your house for”. Bottom line is rents are increasing even as house prices remain soft. In some regions rents are being described as bubbly [CNBC; Rent Report Suggest Possible Bubble].

2 Responses to The Fed’s Stress Test Shows Zero Integrity

  1. JR on March 15, 2012 at 5:22 am

    Maybe so, but this sort of news is good enough to see gold fall 5 odd % in a week. The Fed, & other central banks, still seem to have things under control. Heroin is a powerful substance.

    Also heard you on Radio Free Wall St the other day saying you don’t understand the treasury bond market. I venture the explanation is that the Treasury bond market is an irrational credit bubble, not conducive to explanation.

    • Russ Winter on March 15, 2012 at 2:00 pm

      Yes, if you told me two years ago that the US today would have a 105% debt to GDP with no end in sight, a mostly a AAA rating, a 1% five year T-yield, and central banks stuffed to the gills with this extremely overvalued paper, and participants totally relaxed about that scene, I would have assigned zero probability. Obviously I missed all that.

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