Stressed Out
James Bibbings, May 6th, 2009
Page 1
Stressed Out!
James Bibbings - Commodity News Center
There are two things you should be paying very close attention to:
1. The stress test results
2. The way the government allows banks to pay back TARP funds.
Why? Our entire banking system literally hangs on them. Let me explain.
Story #1 - The Stress Test Results
I have written on point number one in the past and many of you may have read my words. From what I wrote previously:
"The Federal government is going to release some of the results of the now infamous "Stress Test" which was run on our nation's banks. I don't expect the results that come out of any statement from them to be useful, but at least we won't have to hear about the test itself anymore. When you do hear the results please consider the "stress" levels that were used in the "scenarios" tested. Why? Well because the worst case scenario used an unemployment rate of slightly higher than 10% and anticipated the crisis ending by late 2009, they also assumed housing prices would fall 22% or less by the end of the year. How on earth is this a representation of the worst case scenario? Most of these assumptions are already true for crying out loud! If anything, I'd say this is a best case scenario because it assumes we are at the bottom already."
Consider the following:
To the stress test assumptions on unemployment: Already U-6 unemployment (real unemployment) is at 15.6% and "government" unemployment; U-3 is at 9.8%. Based on that assuming a 10% unemployment rate in the worst case scenario seems almost absurd.
